Wall Street expects solid earnings for Walmart, revenue approaches half-trillion dollars

Helped by a strong holiday season, favorable foreign exchange rates and tax reform boon, Walmart Inc. is expected to report solid earnings on Tuesday (Feb. 20) for its fourth quarter and fiscal year 2018.

Wall Street consensus for fourth-quarter earnings is $1.42 per share, up from $1.30 a year ago on revenue of $134.5 billion. Revenue is expected to rise 2.7% from the prior year period. Full-year profits of $4.49 per share, are expected in the fourth quarter ending Jan.31, which would represent a 4% year-over-year gain. Total revenue is forecast to top $498 billion, inching closer toward the half-trillion dollar level. Revenue is expected to grow nearly 3% from a year ago.

Analysts don’t expect any surprises with Walmart as the retail giant has given wide guidance and hit the dead center of that range for the past eight quarters.

• REVENUE BY SEGMENT (FISCAL 2018)
• Walmart U.S: $318.153 billion, up 3.4%
• Sam’s Club: $59.091 billion, up 3%
• Walmart International: $116.562 billion, up 0.4%
• Other income: $4.848 billion, up 11.9%

The bulk of Walmart’s total revenue comes from product sales, which is expected to total $493.8 billion, up 2.6% from a year ago. Analysts expect a gross profit OF $122.65 billion. Expenses are expected to BE up 1.4% from a year ago.

FOURTH QUARTER HIGHLIGHTS
Analysts expect gross margins to be muted in the fourth quarter given Walmart’s continued investment in price aimed at driving higher store traffic amid increased competition from Amazon, Aldi and Lidl, according to Ben Bienvenue, retail analyst with Stephens Inc. Bienvenue is bullish on Walmart for the near term, saying he expects the retailer’s momentum to continue reiterating his overweight rating.

Tighter transportation capacity is also compressing margins, with higher logistics costs that are expected to be in play for the entire year.

Stephens said Walmart benefited from overall increased holiday spending. Bienvenue said he expects Walmart’s competitive standing in the market to continue, thanks to its efforts to expand its e-commerce business. He applauds the retailer’s efforts to expand online inventory, institute pickup discounts for online orders and seek out partnerships like Lord & Taylor to sell higher-end merchandise through marketplace opportunities.

He also said Walmart should benefit from consumers with more purchasing power given the tax rollback and higher wages. Same-store sales are projected to increase 2.25% at Walmart U.S and 2% at Sam’s Club for the quarter. This compared to 1.8% growth at Walmart a year ago. Sam’s Club comp sales are expected to be lower than the 2.4% reported a year ago.

Activities in the fourth quarter expecting to have a negative impact on earnings include the closure of 63 Sam’s Club stores, resulting in roughly 7,500 jobs lost. That’s in addition to a corporate cutback of some 500 people last month across several of the company’s back office operations.

SHARE PERFORMANCE
Walmart shareholders have seen a 48.8% jump in the share price over the past 365 days. One year ago, shares were trading at $69.37, and closed Thursday (Feb. 15) at $103.23. The stock hit a high of $109.98 on Jan. 29, before the recent market downturn.

In October, Walmart announced $20 billion in stock buybacks over the next two years. Analysts said at the time that was a massive amount of capital to allocate for repurchases given the company’s financial performance on its own merit was solid. The announcement was also seen as a ploy to deter activist shareholder campaigns by some, and others saw it as a vote of confidence from management about the strength of the retail giant with abundant cash flow.

Between 2007 and 2016, Walmart had $67.3 billion in buybacks, equal to about 45% of the company’s profits.