Walmart May Boost Guidance With Earnings Beat, Analysts Say

A Walmart Earnings Beat Could Bring Guidance Boost, Analysts Say

Janet Freund

14 Aug 2019, 10:24 PM IST

(Bloomberg) -- It could be shaping up to be a good week for Walmart Inc. investors. Even as the company grapples with mounting criticism of its gun-sales policies and concerns over looming tariffs, analysts are predicting a pretty good report.

JPMorgan’s Christopher Horvers expects the company to raise its fiscal 2020 earnings forecast, including Flipkart, to “slight” growth from its previous view of a low-single-digit decline. He isn’t expecting a change to the year comparable sales forecast, which currently stands at 2.5% to 3.0% growth.

Analysts are mixed on comparable sales, with some expecting them to beat estimates and others expecting them to be in-line, but one expectation is clear: U.S. results will outperform international ones, with John Zolidis of Quo Vadis Capital predicting the 19th straight quarter of positive store traffic.

E-commerce sales performance in the U.S. will be closely watched. Telsey Advisory estimates a 37% year-over-year gain, which would match the first-quarter growth. Bank of America is looking for a 35% advance, and Zolidis predicts a rise of at least 30%. In addition, analysts may have lingering questions around tariffs, even as the Trump administration said Tuesday it will delay until mid-December the 10% tariff on some Chinese products.

Here are additional comments that Wall Street analysts made ahead of Thursday’s earnings:

Morgan Stanley, Simeon Gutman

Gutman says most investors seem to be expecting a full-year guidance boost, but he thinks Walmart may maintain its forecast due to sensitivity around raising earnings expectations on the back of higher consumer prices and impending higher costs
Gutman also expects a “slight” EBIT decline for the quarter, while investors may be looking for EBIT growth; he sees a return to U.S. EBIT growth and margin expansion in the second half of the year
Rates overweight, with a price target of $115 per share

Telsey Advisory, Joseph Feldman

U.S. comp. sales strength should be driven by a favorable macro environment, investments in prices, improvement in produce freshness, merchandising enhancements and advancements in supply chain and operations
On the other hand, the analyst expects International comparable sales to fall 1.5% amid currency pressure, softness in U.K. due to Brexit, and the deconsolidation of the business in Brazil, partly offset by the addition of Flipkart in India
Rates outperform, price target of $118

Quo Vadis Capital, John Zolidis

“We see some room for upside to the Street estimates for the quarter (although our model is similar) and also for the company to raise its full-year outlook”
Walmart should report the 19th consecutive quarter of positive traffic at stores
E-commerce, which is becoming a larger contributor to reported same-store sales growth, should gain at least 30% year-over-year
Continues to see WMT shares as “a long” ahead of results

What Bloomberg Intelligence says:
“Walmart’s focus on improving store operations and investing in lower prices should help support 2Q same-store sales growth, aided by a rapidly expanding online grocery service.”
“Walmart’s gross margin may contract modestly on investments in lower prices, technology and e-commerce efforts.”
-- Jennifer Bartashus, senior packaged food & retail staples analyst
-- Click here for the research

Bank of America, Robert Ohmes

The strong low-income consumer backdrop and likely continued momentum in general merchandise (apparel and home) and fresh food could support potential EPS and comp. sales upside
Estimates 35% U.S. e-commerce growth; continued e-commerce momentum, supported by the expansion of online delivery and grocery pick-up locations
Estimates EBIT to decline 6.5% in 2Q as gross margin pressures from digital mix shifts, price investments and Flipkart offset expense leverage
Rates buy, price target $120; notes continued strength in the U.S. segment

JPMorgan, Christopher Horvers

Sees possibility for EPS to beat consensus from potential operating margin outperformance, driven by SG&A saving efforts; expects year EPS forecast to be raised
But Horvers expects an in-line comp. result “at best,” with weather hurting both the month of May and the first half of June
Rates neutral, with a price target of $110

Just the Numbers

2Q adjusted EPS estimate $1.22 (range $1.17-$1.30)
2Q revenue estimate $130.1 billion (range $128.4 billion to $132 billion) (Bloomberg data)
2Q same store sales excluding gas and FX impact estimate +2.0% (Consensus Metrix, average of 11 estimates)
- Walmart U.S. excluding gas: +2.5% (average of 22 estimates)
- Sam’s Club: +0.6% (average of 18 estimates)
Walmart provided the following fiscal 2020 targets in February:
- EPS: decline by a low single-digit percentage range compared with FY19, including Flipkart
  - Increase by low to mid single-digit percentage range, excluding Flipkart
- Consolidated operating income: decline by a low single-digit percentage range, including Flipkart
  - Increase by a low single-digit percentage range, excluding Flipkart
- Consolidated net sales growth of at least 3% in constant currency
- Walmart U.S. comp. sales growth up 2.5%-3%, excluding fuel
- Sam’s Club comp. sales growth around 1%, excluding fuel; around 3%, excluding fuel and tobacco
- Walmart U.S. e-commerce net sales growth of around 35%

Data

19 buys, 15 holds, 2 sells; average price target $112
Implied 1-day share move following earnings: 4.5%
Shares rose after 7 of prior 12 earnings announcements
Adjusted EPS beat estimates in 11 of past 12 quarters
WMT shares are up 18% in past 12 months vs SPX Index up 0.5%

Timing

Earnings release expected 7 a.m. New York time on Aug. 15

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Morwenna Coniam