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Earnings: What Can WMT’s Results Say About the Consumer?

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May 18, 2016
wmt-earnings-report

Wal-Mart (WMT) faces challenges as it seeks new ways to grow annual revenues that are already approaching $500 billion. Investors will find out what’s working and what needs more tweaking when the world’s largest company by revenues reports Q1 results ahead of the market open Thursday.

Like many other retailers, Amazon’s (AMZN) dominance in e-commerce competes with WMT’s online sales. This competition prompted WMT to invest big into upping its “omni-channel” game. The company also aims to better compete in home delivery and generic prescription drugs, for example. But WMT is also getting nipped by smaller players ranging from deep-discount grocery stores to so-called athleisure apparel retailers.

What’s more, WMT has warned investors that its margins would be pinched by the $5 billion in recent investments including raising in-store wages, improving staff training, reconfiguring stores for better efficiency, and cutting prices to keep its “Save money. Live better.” mantra intact. What can all this mean to the bottom line?

At Thomson Reuters, many analysts are projecting a -15% drop in profits to $0.88 cents a share on a 1.4% decline in top-line sales to $113.2 billion. The strength of the dollar for this multinational giant is another risk to contend with. In the last quarter, annual revenue tumbled for the first time since WMT went public in 1970, partially because of foreign-currency risks.

Short-term options traders have priced in a potential 3.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform by TD Ameritrade.

Going into earnings the 65- and 64-strike puts were active. There was a lot of activity at the 67.50-strike calls when the stock was trading higher recently. The implied volatility is at the 62nd percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

FIGURE 1: CROSS CURRENTS IN WAL-MART.

WMT’s stock has been tugged down recently. In the last week, WMT shares have lost better than 5%. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.