Walmart expected to post lower net income in second fiscal quarter

All eyes will be on Walmart when it reports second-quarter earnings on Thursday (Aug. 17). The consensus estimate is for a net income of $4.55 billion, down 6% from the year-ago period. Earnings per share are forecast at $1.69, down from $1.77 reported a year ago.

While the consensus estimates indicate slightly lower income, most analysts also predict Walmart to outperform expectations. Analysts and economists have said they will look for commentary on consumer spending as the retail giant operates more than 10,500 stores across the globe serving 240 million customers each week.

The Bentonville-based global retailer raised its earnings guidance in February after the first-quarter earnings beat. Walmart expects sales to rise 3.5% for the full year, with earnings between $6.10 and $6.20 per share. The retailer did not provide quarterly guidance. Analysts think Walmart’s second-quarter performance will be on target with its full-year guidance.

The large U.S. business segment is expected to have benefited from Walmart’s low-price strategy along with its leverage with suppliers to reduce pricing and increase market share from traditional large and regional grocery competitors, noted Michael Lasser, a retail analyst with UBS Securities. Lasser also expects cautious tones from retailers reporting earnings this week which includes Target, Home Depot, and T.J. Maxx.

“Pressures continue to squeeze consumer budgets and many retailers report their sales in nominal dollars, which have been growing merely from higher prices. As inflation slows, we look for sales growth to also diminish. Walmart is positioned well as it helps shoppers stretch their budgets. We also see growing Walmart+ subscription revenue, advertising revenue and higher demand of popular weight-loss drugs that can still help drive strong sales for Walmart,” Lasser said.

However, Lasser also expects Walmart to have a cautious tone regarding the back half of the year.

The revenue consensus for Walmart U.S. for the quarter ending July 31 is $107.85 billion, up 2.6% from a year ago. Same-store sales are forecast to have slowed from the 6.5% gains reported a year ago to a modest 2.8% gain for the quarter. Retail margins are also expected to have narrowed in the recent quarter compared to a year ago.

Sam’s Club is expected to report sales of $23 billion, up 6.8% from a year ago. Same-store sales are also forecast to rise 4.8% behind record membership numbers.

Piper Sandler retail analyst Ed Yruma recently raised his one-year target price for Walmart shares based in part because of strong results from Sam’s Club, which he notes is “under-appreciated.” Yruma upgraded Walmart shares to a strong “buy” with a target price of $210 over the next year. He said Walmart is likely benefiting from its low-price strategies, such as offering school supplies at last year’s prices. Yruma said there is also upside growth potential as more higher-income households who have turned to Walmart for food could also begin buying higher margin items as the retailer improves its product offerings in stores and online.

Walmart’s international segment is expected to show strength from Mexico and China coming out of lockdown. The international segment sales are forecast at $28.59 billion, a gain of 17.4% from a year ago. Walmart International CEO Judith McKenna said she was recently encouraged by a trip to China to meet with the sourcing and marketing teams there.

“I loved seeing the speed of the market and how we have moved and evolved. It is still extraordinary to me that almost 50% of our business in our stores and clubs is now done online. It was less than 10% in 2019,” McKenna noted in a social media post on Aug. 7.

The bulls and bears are evenly split over Walmart, with 15 of the 30 analysts following the retailer rating the shares a “buy” and the other half neutral. A dozen brokerage houses have reiterated their “buy” ratings on Walmart since June, with the majority also raising their target price.

Shares of Walmart (NYSE: WMT) closed Monday at $159.99, down $1.21. Year to date, Walmart’s stock value is up about 13%. For the past 52 weeks, the share price has traded between $162.77 and $128.07.