Equity analysts expect modest third-quarter profit growth from Walmart

All eyes will be on Walmart early Thursday (Nov. 14) as the retail giant reports third-quarter earnings and highlights expectations for the holiday season and coming year. Walmart watchers expect $3.176 billion in consolidated gross profits, up from $3.171 billion a year ago for the quarter ending Oct. 31.

Walmart is often seen as a proxy for consumer spending given its scale and the 140 million U.S. consumers who shop the retailer weekly. Analysts remain bullish on Walmart heading into the competitive holiday season despite the year-to-date 28% stock price appreciation.

Bank of America analyst Robby Ohmes said Walmart has earned this affinity given the strong comp-store sales in recent quarters in concert with impressive gains in e-commerce sales. Ohmes said Walmart has dramatically improved its execution online and in-stores and has managed to effectively marry the two with in-store pickup and delivery options for online orders.

Bank of America rates Walmart shares a “buy” and said there is still upside in the stock. He said Walmart has impressive momentum and he pegs Walmart and Target as two of the big winners this holiday season. Ohmes said Bank of America’s recent report on discounters found consumers in the lowest income cohort are spending at a faster pace than consumers with higher incomes. He said data behind the finding comes from debit and credit card transactions with Bank of America cards. He said higher labor force participation, lower fuel costs and strong consumer confidence are positives for Walmart’s core customers.

A consensus of equity analysts expect Walmart to report total revenue of $128.64 billion in the quarter, up 3% year-over-year. The lion’s share of that revenue will come from Walmart U.S. expected at $82.42 billion, up about 3% from a year ago. U.S. comp sales are also forecast at 3% this year. While that is down from 3.6% last year it is still one of the best same-store sales metrics in the industry, according to Cleveland Research, who expects the underlying comps to continue to accelerate beyond this year. They base that assumption on the consistent positive comp performance during the past three years.

Walmart U.S. also continues to grow its top-line sales adding $12 billion over the past year, outpacing major competitors of Kroger, Target, Costco and Dollar General in this metric. Analysts point to price leadership, improved operations and customer service, fresh food improvements and growth of the e-commerce linked in part to the online grocery pickup rollout of the past year.

Walmart is expected to do well with holiday sales in toys, a category it has invested heavily in with the absence of Toys R Us. Cleveland notes Walmart is also gaining share in electronics and wireless sales as well as improvements in apparel and automotive category sales.

Areas to watch are health and wellness which are growing comp sales in the low-to-single digits. Cleveland reports health and wellness comps holding at about 4% through the third quarter. The firm said the Walmart Health Center concept is interesting to watch, perhaps building on the success of growing prescription counts and expanded services such as screenings and immunizations available in the Walmart pharmacies.

Walmart U.S. eCommerce is expected to report strong sales numbers, though the segment is not yet contributing to the bottom line. Sam’s Club has yet to name a new CEO with the recent promotion of John Furner to Walmart U.S. CEO. Walmart is expected to make that announcement soon. Sam’s Club is expected to report sales of $14.91 billion, up about 2% from the prior year. Memberships are expected to be up as more consumers upgrade to the higher-priced $100 savings membership.

Walmart International is expected to have mixed results with likely weakness in Africa and the United Kingdom against strong gains in Mexico and China.

Shares of Walmart (NYSE: WMT) closed Tuesday at $118.97, down 7 cents. Over the past 52 weeks, the shares have traded between $85.78 and $120.92. The share price is up 28% this year, ahead of the 9% gain in the retail index. Walmart’s consensus target price is $123.58.