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 in technology and fulfillment has paid significant dividends in Walmart’s ability to service the needs of its customers the country during the pandemic.
But in the quarters ahead, can the retail giant maintain its growth rate and sustain its e-commerce dominance amid much tougher year-over-year comparisons? This question, among others, will be answered when Walmart reports second quarter fiscal 2021 earnings results before the opening bell Tuesday. While it is not directly reflected in the stock, which is up just 3% year to date, trailing the 18% rise in the S&P 500 index, expectations for the company are still high heading into the quarter.
Walmart stock hasn’t performed as well as investors would like. But that could change after its earnings results, according to Bank of America analyst Robert Ohmes. Citing strong Q2 report from Walmart, along with raised Q3 guidance, driven by back-to-school/general merchandise strength, the analyst assigned a Buy rating on the stock with price target of $185, calling for potential gains of 25%. Among other bullish commentary, Ohmes expects Walmart to keep growing market share in groceries and online sales growth that may outpace Amazon (AMZN), noting Walmart’s expanded e-commerce capabilities.
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. Analysts project Walmart to have gained more market share in both e-commerce and physical stores revenue. Accordingly, Walmart stock looks attractive, offering a solid entry point for value investors who also seeks growth drivers. That said, the company is now facing much tougher comps. Can it continue to deliver on Tuesday?
In the three months that ended July, Wall Street expects Walmart to earn $1.54 per share on revenue of $135.92 billion. This compares to the year-ago quarter when earnings came to $1.56 per share on revenue of $136.82 billion. For the full year, ending January, Walmart’s earnings are projected to rise 9% year over year to $5.98 per share, while full-year revenue of $553.66 billion would decline 1% year over year.
The recent decline in WMT stock is likely due to the anticipated year-over-year 1% decline in fiscal 2021 revenue. What’s more, in the years ahead, revenue is projected to grow more moderately, rising by a 3% increase in 2022 and a 4% increase in 2023. On the profit side, following a 9% rise this year, EPS is expected to dip about 5% in 2022, then rise by 9.7% in 2023 to $6.85 per share. The question is whether Walmart can accelerate the revenue growth while expanding its profit margins to boost long-term EPS.
In Q1, gross profit rate rose 104 basis points, while consolidated operating expenses were relatively flat. This sent consolidated operating Q1 income surging more than 32%. This was notable given investors’ concerns that the quarter would be weighed down by rising expenses. However, Q1 total revenue was up just 2.7%. And while the company reported a 37% surge in e-commerce revenue, it was a notable slowdown from the 69% rise in Q4.
On Tuesday investors will assess not only whether revenue growth can re-accelerate, but whether the company will issue upside guidance in its key operating metrics such as 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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