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Walmart to Report a 13% Second Quarter Growth

The Scoop:

Walmart is expected to announce a 13% growth due to its steady growth in ecommerce as well as part of its reorganization efforts.

The story:

Wall Street is bullish on Walmart and expects double-digit earnings growth of 12.9% when the retail giant reports its fiscal second quarter results on Thursday (Aug. 16) ahead of the market opening.

The 26 analysts peg net income at roughly $3.6 billion, or $1.22 per share. That compares to $3.269 billion or $1.08 per share in the year-ago quarter ending July 31. Revenue growth of 2.2% is expected with total sales of $126 billion for the three months ending July 31.

In a note to investors Bienvenue stated Sam’s Club growth should be smaller compared to the surprising upside realized in the first quarter. He said the segment continues its reorganization which should help Walmart maximize efficiencies and drive long-term return of investment. He’s confident Walmart can hit its 40% annual growth target for e-commerce given the unit’s resurgence in the first quarter after a disappointing fourth quarter of 2017. He said the pending acquisition of Flipkart could pressure the stock, but the expectations have already priced that into the forecast.

Walmart U.S. is expected to see same-store sales growth of 2.3% in the quarter ended July 31. Sam’s Club comp sales are expected to rise 2.2%, though Stephens has them lower due to the loss of tobacco sales in certain club locations. Bienvenue expects Sam’s Club will see only slightly positive second quarter comp sales of 0.5%.

Bienvenue said the continued expansion of Walmart grocery pickup to 1,000 stores this year will support e-commerce momentum because the transactions carry a higher average basket than in-store shoppers. The retailer’s international business is evolving for the better, he notes. The recent sale of 80% of its Brazilian business to Advent International closed Aug. 1 and should create a non-cash, discrete net loss of $4.5 billion for Walmart.

The bulk of Walmart’s profits are wrapped up in its massive U.S. segment where the retailer remains focused on price leadership among its competitors. Stephens said the pricing gaps were most noticeable in meat, bread, grocery and packaged foods where discounts widened from the first quarter. The report also found the price separation narrowed between Kroger and Walmart in the fruit, vegetable and dairy categories.

Stephens expects Walmart’s gross operating margins to dip to 4.2% in the quarter, down from 4.7% a year ago.

Analysts do agree that Walmart seldom misses on earnings having beat expectations 10 of the past 11 quarters. Walmart is also an overachiever on revenue having exceeded expectations for the past four quarters. That said, Walmart shares are down 9.1% year to date. Shares of Walmart Inc. (NYSE: WMT) closed Monday (Aug. 13) at $89.64, down 54 cents. For the past 52 weeks the share price has ranged from $77.50 to $90.54.

“Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy, We knew this would be a good year, but it’s turning out to be even better than expected.” – NRF President and CEO Matthew Shay

Shay said uncertainty remains on the impact on tariffs. The primary concern is inflationary prices in the U.S. and while that takes a toll on consumers, retailers like Walmart tend to do a little better in periods of low-to-moderate inflation which drives higher top line revenue. Given Walmart’s scale, the retail giant has said it can get more price separation against competitors which there is some inflationary

Source: TBP

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