Wal-Mart is scheduled to announce its fiscal third quarter results on Thursday, November 16. The company reported better-than-expected fiscal second quarter results, as both its bottom line and revenue came in ahead of market expectations. On a reported basis, the company’s revenue increased 2% year over year (y-o-y) to $123.4 billion, driven by growth in the domestic market due to its marketplace offerings, partially offset by foreign currency fluctuations. The retailer’s consolidated net income declined 23% y-o-y to $2.9 billion in the second quarter. Wal-Mart also posted earnings per share of $0.96, down 21% y-o-y, and adjusted EPS of $1.08, which was at the upper end of its guidance range.
Our $80 price estimate for Wal-Mart’s stock is more than 10% below the current market price.
Wal-Mart’s e-commerce sales grew an impressive 60% y-o-y. The majority of this growth was organic through Walmart.com, including online grocery, which is growing quickly. This growth was also likely boosted by the company’s recent acquisitions, such as Moosejaw, Shoebuy and Bonobos, which have provided expertise in higher-margin categories like shoes and apparel.
Developments In The Quarter
Following Amazon’s acquisition of Whole Foods, indicating its seriousness in the grocery business and expanding its physical presence, Wal-Mart has been ramping up its digital initiatives to build a technological edge. Convenience is likely to be one of the key areas where both players plan to win customers and drive market share. As a result, Wal-Mart announced the roll out of giant self-serve kiosk towers, in order to make its in-store pick-up process more efficient and faster. In addition, Wal-Mart also filed a U.S. patent for floating warehouses that can make deliveries using drones, similar to what Amazon was granted in April 2016. Taking these initiatives a step further, Wal-Mart also announced a partnership with Google to offer its products for sale via Google’s voice assistant. Wal-Mart plans to integrate its products with Google Express, through which customers will be able to place voice orders and get personalized recommendations based on past orders. Also, Wal-Mart’s e-commerce site Jet.com will soon be launching its own line of groceries which will include several household products including laundry detergent, staples, and coffee. This private label (Uniquely J) is expected to be of fairly high quality and appears to be Wal-Mart’s attempt to create a line which is different from its cheaper mass-market products.
Future Outlook
For the upcoming quarter, Wal-Mart expects comparable sales growth for Wal-Mart U.S. to range between 1.5% to 2.0%, and Sam’s Club (ex. fuel) comparable sales to range between 1.0% to 1.5%. Additionally, the company also expects earnings per share in the range of $0.90 to $0.98 in the third quarter.
For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.30 to $4.40, as compared to consensus’ $4.36 per share.
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