Wal-Mart will report Q3 results tomorrow morning
Wal-Mart (WMT) will report third quarter (October) results tomorrow morning around 7:00 followed by a pre-recorded call, management commentary and a presentation on its website.
The strong US consumer is providing a strong tailwind for the nation's largest brick and mortar retailer. Last quarter, Wal-Mart reported its best comparable store sales in more than a decade. Wal-mart US comps accelerated 240 basis points sequentially to 4.5%, handily beating estimates. The company's omnichannel and digital priorities that are delivering results as eCommerce sales grew 40%.
The Street expects Q3 EPS of $1.02 (vs. $1.00) last year with net sales (excluding membership fees) up 2% to $124.4 billion and comps up 3%.
At its Annual Meeting last month, Wal-Mart updated guidance for fiscal 2019 (January) to account for dilution from the Flipkart acquisition. Wal-Mart lowered FY19 EPS to $4.65-4.80 from $4.90-5.05 (vs. $4.42 last year). In August, the company raised constant currency net sales growth to ~2% from +1.5-2.0% while raising Walmart US comp sales (ex-fuel) to ~3% from at least 2% and Sam's comps to ~3% from flat to down 1% despite a 200 bps negative impact from tobacco. Capital IQ Consensus calls for FY19 EPS +8% to $4.79 with net sales up 3% to $512 billion, Wal-Mart US comps +3.2% and gross margin down slightly at 24.5%.
The company also gave preliminary guidance for fiscal 2020 at its Annual Meeting. Wal-Mart guided for FY20 sales growth to be 3% or greater, negatively affected by about 100 basis points due to the deconsolidation of the Brazil operations and planned reduction in tobacco sales at Sam's Club. Walmart U.S. comp sales growth is expected to be in a range of 2.5-3.0% and eCommerce net sales growth is expected to be around 35%. FY20 operating income is expected to decline by a low single digit percentage range, but is expected to increase by a low single digit percentage range when excluding Flipkart in both FY19 and FY20. FY20 EPS is expected to decline by a low single digit percentage range versus FY19 adjusted EPS. Excluding Flipkart, EPS is expected to increase by a low to mid-single digit percentage range versus FY19 adjusted EPS.
Wal-Mart continues to invest in online growth channels and overseas markets to expand its retail presence globally, which will weigh on bottom line over the intermediate term. Investors seem to be ok with that while core results remain strong.
Wal-Mart has a $298 billion market cap and trades at 21x EPS, a premium to Kroger (KR) at 14x and Target (TGT) at 15x but a discount to wholesaler Costco (COST) at 30x. The weekly options imply a ~5% move in the stock by Friday. Note that US retail sales for October will also be released tomorrow morning at 8:30.