Walmart expected to post quarterly net income gain of 6.5%

Walmart is expected to beat estimates when it reports fiscal second-quarter earnings on Thursday (Aug. 15) for the period ending July 31. The consensus estimate is 65 cents per share, up 6.5% from a year ago. Revenue is forecast at $167.3 billion, up 3.5%.

Comp-store sales are expected to increase 3.3%. Financials from the Bentonville-based retail giant are closely watched because they provide insight into consumer trends. Analysts will also look for Walmart commentary on back-to-school sales and its recent July sales event held in conjunction with Amazon’s Prime Day.

Kevin Simpson, chief information officer and founder of Capital Wealth Planning, expects Walmart to guide up with a better-than-expected quarterly result.

“They are basically printing cash flow like never before. Even though their earnings-to-price multiple is a little pricy I like their sneaky advertising play. … I am most interested about the ad revenue because it falls straight to the bottom line,” he said.

Robert Ohmes, an analyst with Bank of America, said the retailer’s ability to continue picking up higher-income market share, ongoing success in its third-party marketplace business and the growing ad business should help improve gross margin to offset promotional price cuts during the quarter.

UBS analyst Michael Lassiter emphasized Walmart’s ability to leverage its extensive consumer data and advertising revenue which added $3.4 billion to its net earnings last year.

“We believe Walmart’s second quarter results will signal to the market that the constructive case on its stock is still in the early stages of unfolding,” he said. “Walmart has spent many years putting the pieces in place, making the right investments, learning from its mistakes, and seizing on opportunities and it’s starting to reap the benefits.”

He expects comparable-store sales of 3.2% and has a target price of $74 for the stock. Lassiter’s earnings estimate is in line with the consensus.

Walmart Chief Financial Officer John David Rainey said in June that management was focused on growing revenue, selling more units to offset some deflation, and gaining market share among consumers seeking value. He said the retailer expects to grow profits ahead of sales in the next few quarters. He said Walmart likes its chances if inflation continues given its scale to reduce prices and sell more items at lower prices.

Walmart U.S. is expected to report revenue of around $114 billion, up 3.2% year over year. Net operating income is forecast at $7.5 billion, up 1% from a year ago. Sam’s Club is expected to report revenue growth of 4.1% to $22.7 billion. Analysts expect some softness in same-store sales growth at 2.1%, roughly half the rate recorded a year ago. Sam’s Club e-commerce sales are expected to grow 6% from a year ago.

Walmart’s diverse international segment is expected to have revenue of $28.5 billion, up 3.3% from a year ago. Analysts expect continued strength from Walmex with same-store sales above 7% for the quarter. The business in Canada is expected to see modest improvements in same-store sales led by double-digit e-commerce growth.

Dana Telsey of Telsey Advisory Group pegs the target price at $75, as does Bank of America. On July 1, analysts at Deutsche Bank raised their target price from $71 to $77 on what they expect to be a strong earnings beat on Thursday.

Shares of Walmart have increased around 31% in value so far this calendar year. Walmart shares (NYSE: WMT) opened the week at $68.34 per share, and continued to trade higher over the morning session on anticipation of an earnings beat. Over the past 52 weeks the shares have traded between $49.85  and $71.33.