Walmart likely to boost guidance with strong earnings, say Analysts

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 per cent  to 3.0 per cent  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: US 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 US will be closely watched. Telsey Advisory estimates a 37 per cent  year-over-year gain, which would match the first-quarter growth. Bank of America is looking for a 35 per cent  advance, and Zolidis predicts a rise of at least 30 per cent . In addition, analysts may have lingering questions around tariffs, even as the Trump administration said Tuesday it will delay until mid-December the 10 per cent  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 US 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

US 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 per cent  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 per cent  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 per cent  US 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 per cent  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 US 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 per cent  (Consensus Metrix, average of 11 estimates)

Walmart US excluding gas: +2.5 per cent  (average of 22 estimates)

Sam’s Club: +0.6 per cent (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 per cent  in constant currency

Walmart U.S. comp. sales growth up 2.5 per cent -3 per cent , excluding fuel

Sam’s Club comp. sales growth around 1 per cent , excluding fuel; around 3 per cent , excluding fuel and tobacco

Walmart U.S. e-commerce net sales growth of around 35 per cent 

Data

19 buys, 15 holds, 2 sells; average price target $112

Implied 1-day share move following earnings: 4.5 per cent 

Shares rose after 7 of prior 12 earnings announcements

Adjusted EPS beat estimates in 11 of past 12 quarters

WMT shares are up 18 per cent  in past 12 months vs SPX Index up 0.5 per cent 

Timing

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

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 US will be closely watched. Telsey Advisory estimates a 37 per cent  year-over-year gain, which would match the first-quarter growth. Bank of America is looking for a 35 per cent  advance, and Zolidis predicts a rise of at least 30 per cent . In addition, analysts may have lingering questions around tariffs, even as the Trump administration said Tuesday it will delay until mid-December the 10 per cent  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 US 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

US 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 per cent  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 per cent  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 per cent  US 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 per cent  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 US 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 per cent  (Consensus Metrix, average of 11 estimates)

Walmart US excluding gas: +2.5 per cent  (average of 22 estimates)

Sam’s Club: +0.6 per cent (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 per cent  in constant currency

Walmart US comp. sales growth up 2.5 per cent -3 per cent , excluding fuel

Sam’s Club comp. sales growth around 1 per cent , excluding fuel; around 3 per cent , excluding fuel and tobacco

Walmart US e-commerce net sales growth of around 35 per cent 

Data
 

19 buys, 15 holds, 2 sells; average price target $112

Implied 1-day share move following earnings: 4.5 per cent 

Shares rose after 7 of prior 12 earnings announcements

Adjusted EPS beat estimates in 11 of past 12 quarters

WMT shares are up 18 per cent  in past 12 months vs SPX Index up 0.5 per cent 

Timing

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