Walmart expected to see 9% annual profit growth with sales topping $514 billion

Walmart is expected to report solid fourth-quarter and fiscal year gains behind robust holiday sales ahead of the government shutdown which could have some impact on the last part of the retailer’s fourth quarter. Walmart will report its fourth quarter and fiscal 2019 earnings ahead of the market opening on Tuesday (Feb. 19).

A consensus of 27 analysts covering the company project fourth-quarter earnings per share of $1.33, basically flat against the year-ago period. Net income in the quarter ending Jan. 31 is expected to be $3.93 billion, compared to $2.17 billion reported a year ago. That’s more in line with the $3.757 billion reported two years ago. Fourth-quarter revenue is expected to top $136 billion, rising about 1.8% year-over-year.

The retail giant likely had a solid start to the fourth quarter with spending beginning to slow through December and in January with the impact of the month-long government shutdown. While the fourth-quarter results could be somewhat lackluster, the retailer is expected to show solid 9% annual earnings growth for the full year, which also ended Jan. 31.

Consensus fiscal 2019 earnings are expected to be $4.84 cents per share, compared to $4.41 earned a year ago. Net income from continuing operations is expected to be $14.303 billion, up from $13.263 billion in the prior year. Operating income is forecast to be flat at $22.12 billion for the full year.

Across its segments, Walmart U.S. sales are expected to be $330.475 billion for the year, up 3.7% from a year ago. Sam’s Club is expected to report lower sales as the number of clubs were reduced from a year ago. Sam’s Club sales revenue is forecast at $58.96 billion, compared to $59.21 billion a year ago. Walmart International is expecting sales of $120.6 billion, up about $2 billion year-over-year. Other income, including membership fees, are expected to be down 3.9% at $4.176 billion for the year.

Total company revenue should top $514.3 billion for the year ending Jan. 31, according to the analysts. Revenue growth is projected at 2.5% year-over-year. Analysts expect Walmart’s gross profits will be $124.4 billion for the year, up from $122.36 billion a year ago.

Analysts from Zack’s Research note Walmart shares (NYSE: WMT), which closed at $98.52, up 58 cents, on Thursday (Feb. 14), were 8% below the stock’s 52-week high of $106.21. Wall Street gives Walmart a one-year target price of $106.93, which means the stock would need to show strong results and surprise the street to get any real bump in price.

Zack’s noted the expansion of online grocery and investments in e-commerce are positives for the long term. They also cited the Flipkart deal in India which is expected to be a drag on earnings in the shorter term, but will likely prove key down the line behind the growth explosion occurring in India.

Ben Bienvenue, an analyst with Stephens Inc., said in November, “Walmart’s productivity loop is the healthiest it’s been in years.” He said the renewed focus on paring down international holdings to focus solely on key growth opportunities is also a solid strategy for Walmart.

Little Rock-based Stephens Inc. is bullish on Walmart shares ranking them a “buy” with an earnings estimate for the year of $4.86 per share. Bienvenue is a bit higher than the street estimate of $4.84 per share. His annual revenue projections for Walmart are $513 billion, more cautious than the consensus.

Walmart shares reacted favorably to a weaker-than-expected retail sales report for December released on Thursday as shares traded slightly higher, while the Dow Jones Industrials closed in the red by 103 points. Analysts and economists had expected strong December sales behind the robust holiday reports which came out immediately after the first of the year.

The U.S. Census Bureau reported Thursday advance monthly sales in retail and food service in December totaled $505.8 billion, down 1.2% from the previous month. That said, sales rose 2.3% from December 2017. While auto sales were up in December from the prior month, retail trade for general merchandise sales was down 1.3% which surprised economists and will likely cause some downward projections in fourth quarter GDP as retail spending comprises about 60% of that the total GDP.

J.P. Morgan analysts reduced their fourth-quarter growth projections for the retail sector from 2.6% to 2% citing December sales having the biggest drop in nine years during what is usually peak spending for consumers. The note from J.P Morgan said retailers added 21,000 jobs in January which was above trend. The company’s economists said it’s most likely consumers that have been spending big pulled back when they saw their 401(k) values plummeting during the highly volatile stock market through December. They noted the bigger job numbers in January don’t compute with weaker sales in December.

Mark Zandi, chief economist at Moody’s Analytics, said some forecasters have not yet updated GDP estimates and the ones who have are at a median projection of 2.2%. He said the fluid trade talks could have the potential to raise forecasts with news like the recent narrowing of the trade deficit.