Without question, Walmart (WMT) has benefited immensely from strong demand for groceries, consumables, health and wellness, as well as general merchandise categories during the pandemic. The company’s investments it has made in technology and fulfillment has paid significant dividends in Walmart’s ability to service customers needs across the country as Covid cases rose during the pandemic.
But what will 2021 bring? Can the retail giant maintain its growth rate and sustain its e-commerce dominance in the quarters ahead? These questions, among others, will be answered when Walmart reports fourth quarter fiscal 2021 earnings results before the opening bell Thursday. Expectations are high heading into its earnings report as many analysts project the retail giant to have secured more market share gains in both physical stores and from its expanded e-commerce capabilities.
Walmart has taken a page out of Amazon’s (AMZN) playbook by growing revenue while sacrificing profits to enhance the customer experience. The stock market has applauded the company’s approach, given that digital revenue has shown tremendous growth, averaging 35% annualized gains over the past five quarters. Whether from its record top-line beats to strong same-store sales, to consistent execution across all product categories to margin expansion, Walmart’s recent results have been nothing short of impressive. But the company is now facing much tougher comps.
In the three months that ended January, Wall Street expects Walmart to earn $1.50 per share on revenue of $148.11 billion. This compares to the year-ago quarter when earnings came to $1.38 per share on revenue of $141.67 billion. For the full year, Walmart’s earnings are projected to rise 13% year over year to $5.59 per share, while full-year revenue of $555.12 billion would rise 5.9% year over year.
At the onset of the pandemic when states began to shut down, shoppers rushed to stock up on staples, cleaning products and groceries through the pandemic. Walmart benefited from that demand given that grocery goods accounts for 50% of the company’s consolidated revenue. In the third quarter revenue grew 5% year over year, topping consensus expectations for a 2% growth. Third quarter adjusted profits of $1.34 rose 16% year over year and 15 cents above Street estimates.
Notably, Q3 e-commerce revenue growth rose 79% year over year, topping the 70% growth mark yet again, compared to the pre-pandemic increases of 25% to 30%. Third quarter same-store sales rose 6.4% in the U.S., topping consensus estimates of 5.9%. The gains were driven by strong growth across key categories, including groceries, general merchandise as well as health and wellness. Just as impressive was that Q3 gross margin rose 50 bps year over year to of 25%, despite the company seeing higher-than-normal mix of e-commerce sales that have lower margin.
These metrics suggest that Walmart’s e-commerce platform is gaining significant traction and growing at a faster rate compared to Amazon. All told, Walmart has now established a strong revenue barbell strategy where both is brick-and-mortar stores and online business are producing equally. But for the stock to keep rising, however, on Thursday Walmart must show not only sustained e-commerce growth, but also improved margins and same-store-sales.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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