Wall Street expects mixed quarterly earnings report from Walmart

Walmart has been deemed a winner in challenges caused by COVID-19. While analysts largely remain bullish on the Bentonville-based retailer, they also expect slightly lower net income for the second quarter which the retail giant will report Aug. 18.

Consensus adjusted earnings per share are expected at $1.24 per share, down 2.4% from the $1.27 reported a year ago. Consolidated net income is forecast at $3.5 billion, on par with a year ago. Revenue is expected to rise nearly 4% to $135.3 billion for the quarter, according to consensus estimates.

U.S. comparable-store sales are expected to rise 5.4% for the quarter, with Sam’s Club posting a 5.2% increase from the same period last year. Comp-sales growth is estimated up sharply from a year ago from the U.S. segment’s 2.8% and Sam’s Club 1.2% comps. Analysts expect store traffic to be lighter with higher average tickets and e-commerce growth to accelerate 60% in the period.

Stephens Inc. Analyst Ben Bienvenu said Walmart has clearly been a winning story over the last five years, but with the recent COVID-19 backdrop shifting the narrative the focus by many has been more near-term. He said Stephens is inclined think about what near-term dynamics could mean for Walmart in the long-term.

Bienvenu said since 2015 management has been focused on building long-term value and has delivered against their plan thus far. Stephens recently revised its earnings estimates upward for the quarter and the fiscal year. The quarterly estimate of $1.29 per share is more bullish than the street consensus, but Bienvenu expects strong results from Sam’s Club offset by some weakness in the international segment.

“As COVID accelerates the e-commerce business, and the platform continues to scale, we also explore the potential impact of this growing business on valuation in this note. We reiterate our overweight rating and increase our price target to $160 (from $140 prior),” Bienvenu noted.

Analysts also expect downward pressure on gross margins given the $390 million in bonus pay to employees which is expected to ding earnings by 10 cents a share. With total bonus pay of $428 million, the impact to earnings is 12 cents a share.

“We felt that Walmart was well positioned heading into calendar 2020, with line of sight to expense leverage and accelerated earnings growth set to deliver on the next leg of the value creation story management had laid out for investors,” Bienvenu noted. “Once COVID-19 showed up, the playbook clearly changed, but Walmart is unquestionably a winner in this environment, and we think the accelerated maturation of the e-commerce business will only enhance Walmart’s advantage relative to other grocers/retailers, and could help close the gap with Amazon.”

Analysts with Raymond James are also bullish on Walmart with second quarter earnings per share of $1.28,  above the $1.24 consensus.

“Our view on Walmart remains unchanged. Strategically, we continue to believe the company’s strategy of investing in important growth geographies (China & India) and new growth opportunities/verticals (1-day delivery, Walmart plus, healthcare clinics, etc.) position it well to gain further market share,” noted Bobby Griffin, analyst with Raymond James & Associates.

Griffin said the big question is how much upside remains in the stock. He said there are only a few retailers driving year-over-year increases in customer traffic and comps and Walmart’s omnichannel capabilities, financial strength and leadership put the company in a position to win.

“Overall, Walmart’s business is defensible, yet also has growth characteristics to take market share (eCommerce),” he said.

Shares of Walmart closed Thursday at $131.85, up 50 cents on the day. For the past 52 weeks shares have traded between $102 and $134.13. Year-to-date, Walmart shares are up 10.95%.