What To Expect From Wal-Mart’s Q4 Results
Wal-Mart (NYSE:WMT) is scheduled to announce its fourth quarter results on Tuesday, February 21. The company posted mixed results in the third quarter, as its bottom line beat analyst expectations but revenues missed. The retail giant’s net revenues increased 0.7% year over year (y-o-y) to $118 billion, while adjusted earnings of 98 cents per share were down 5% y-o-y, but well within the company’s guidance. In Q3, the company benefited from growth in the domestic market due to its marketplace offerings and benefits from Jet.com, partially offset by the negative impact of food deflation and foreign currency fluctuations. We expect this trend to continue into the fourth quarter as well.
Wal-Mart also posted three straight quarters of positive comparable sales in fiscal 2017, which validates the company’s investments in e-commerce and marketing initiatives. However, we expect its earnings and cash flows to see some pressure due to these increased investments going forward. Wal-Mart is in the process of upgrading its 4,648 U.S. stores, and at the same time investing heavily in its e-commerce platform to counter the challenges posed by online retailers. In fact, Wal-Mart plans to invest more than $1 billion to improve its pre-existing store technology and customer services. The company’s capital expenditures are expected to be reach approximately $11 billion in fiscal 2018.
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Holiday Season
Excluding the gasoline stations component, total retail and food services sales for the 2016 holiday season were up 3.9% y-o-y, while holiday spending in non-store retailers jumped 12.8% y-o-y. [1] This signifies that the traditional retailers have had a tough time, as e-commerce competitors captured a bigger share of the holiday selling season, which is very important for retailers. [2] So overall, we expect Wal-Mart to post mixed holiday sales results, as it still still relies on store sales, which could be negatively impacted by the ongoing customer shift from stores to online shopping. Although Wal-Mart is investing heavily in its e-commerce initiatives, it will likely take time for the company’s online growth to have a significant impact on its overall results. In Q3 fiscal 2017, the company’s online sales grew 20.6% y-o-y.
Future Outlook
Wal-Mart raised its full year adjusted EPS guidance range to between $4.20 to $4.35, up from $4.15 to $4.35 previously. It now expects its full-year effective tax rate to range between 31% and 32%. For the upcoming quarter, the company expects comparable sales growth for Wal-Mart U.S. and Sam’s club (ex. fuel) to range between 1.0% to 1.5%. Wal-Mart also expects adjusted earnings per share in the range of $1.18 to $1.33 in the fourth quarter. Reuters’ compiled analyst estimates forecast revenues of $131 billion and earnings of $1.29 per share in Q4, in line with guidance.
Please refer to our complete analysis for Wal-Mart
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Notes:- U.S. Census Bureau, Jan 18 2017 [↩]
- Tough Consumer Spending Environment, SeekingAlpha, Feb 17 2017 [↩]