Wall Street expects second quarter earnings dip for Walmart

Walmart has been one of the darlings of Wall Street in recent months, often viewed as a safety net or defensive play because of the high dividend and sound balance sheet. But as a trade war with China escalates, Walmart shares have had a volatile week ahead of the retail giant’s second-quarter earnings report set for Thursday (Aug 15).

Wall Street expects earnings of $1.22 per share, down 6.2% from a year ago. Revenue is projected to reach $130.21 billion, up 1.7% from the year-ago quarter. Walmart rarely misses earnings projections and the stock is known to move up or down about 4% on the day earnings are reported.

Stephens Inc. analyst Ben Bienvenue predicts second-quarter earnings of $1.23 per share with net income of $3.526 billion. He pegs revenue at $130.37 billion up 1.8% from a year ago. Stephens expects Walmart U.S. sales to increase 2.9% to $85.218 billion in the quarter ending July 31. Sam’s Club revenue is expected to top $14.91 billion, up 0.8% from a year ago. International sales are expected to be down 0.8% to $29.22 billion.

Walmart’s operating margin is expected to be 4.3%, up .22% from the prior-year period. Same-store sales are expected to be up 2.6% for Walmart U.S. with Sam’s Club comp sales up 0.5%. Company-wide, comp sales are expected to be up 3% in the quarter. Stephens is overweight on Walmart shares with a target price of $117. (Stephens conducts investment banking services for Walmart and is compensated accordingly.)

“Walmart has taken the first step in the next chapter of what has been a multi-year value creation story for shareholders,” Bienvenue noted in mid-May.

Stephens is not alone in its position on Walmart. CNBC host Jim Kramer said on Monday that Walmart has the wherewithal, customer reach and scale to weather the trade tariffs indefinitely. He said despite recent trepidation in the retail sector regarding the approaching tariffs on Chinese goods, he still favors a few retailers and Walmart leads that WATCH group – Walmart, Amazon, Target, Costco and Home Depot.

Walmart shares (NYSE: WMT) fell 2% on Monday to close at $105.06 amid tariff concerns and a jittery overall market. The Dow Jones Industrial Average fell 389 points, or 1.48%, on the day. Walmart shares are up 14% since January despite the 9-point slide the stock has had since mid-July.

Among the 32 equity analysts following Walmart, 15 of them rate the shares at buy, 15 are neutral and 2 analysts are underweight with a sell recommendation, according to Yahoo! Finance. Goldman Sachs recently initiated coverage of Walmart with a “buy” rating. Gordon Haskett also recently upgraded Walmart shares to a “buy” position. Analysts with KeyBanc and Morgan Stanley recently maintained their “buy” ratings on Walmart shares citing the company’s ability to grow sales and withstand the impact from pending Chinese tariffs.

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Walmart is also reportedly mulling the sale of ModCloth, one of the apparel startups it purchased in March 2017. Walter Loeb, a retail analyst and consultant, said ModCloth has had three CEO changes in the past two years and the losses are mounting in Walmart’s e-commerce business. He expects to see Walmart shed other unprofitable businesses that don’t add value to the company’s core business.

The culture fit of ModCloth and Walmart was strained from the get-go as social media posts in 2017 from ModCloth customers did not like the marriage to Walmart. ModCloth has remained independent by running its own e-commerce site and four stores, including one outlet store recently opened to try and connect with off-price consumers.

Loeb said he applauds Walmart’s efforts to shop ModCloth and other money-losing e-commerce ventures acquired by Marc Lore, CEO of Walmart U.S. e-Commerce. He also applauds Lore’s efforts to turn around Walmart’s flagship online business.

“He brought a deep knowledge of the internet that the company needed. That said, I consider it irresponsible that Marc Lore has too long ignored the bottom line. Jet.com was not going to be profitable for years and now those losses have been absorbed by Walmart.com.” Loeb said.