Wal-Mart’s Q4 Should Benefit From Strong Holiday Sales
Wal-Mart (NYSE:WMT) is scheduled to report its fourth quarter results on Tuesday, February 20. The company had a fairly strong first three quarters of the year, as its performance was mostly above its guidance and market expectations. We have created an Interactive Dashboard which outlines our forecasts for the company’ Q4 and expectations for its fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.
Growth In Revenue, Decline In Earnings
In the first nine months of fiscal 2017, the retailer’s total revenue increased 3% year-over-year (y-o-y) to $364 billion, driven by 3% y-o-y growth in the U.S. business. Wal-Mart’s net growth was positively impacted by a 2% overall comparable sales growth, 0.3% year-over-year growth in consolidated retail square feet and sales from recent acquisitions. We expect the company’s revenues to grow modestly in the fourth quarter as well.
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However, the company’s operating income declined 4% y-o-y in the first three quarters, primarily due to investments in technology and a rise in employee wages. Consequently, the company’s net income also declined 22% y-o-y to $8 billion in the same period, translating into earnings of $2.54 per share. Going forward, we expect earnings decline to continue in Q4 based on the aforementioned factors.
Rise In Holiday Sales
The holiday season in the U.S. (November-December) is the busiest time of the year for retailers. In 2017, the retail sales between November and December grew strongly at 6% y-o-y, indicating that the retail industry benefited from Thanksgiving weekend, Cyber Monday and Christmas Holidays. This was among the strongest holiday season sales growth since 2010, likely driven by e-commerce sales. In terms of general merchandise store sales in the U.S., the category grew 4% in November (while the figure declined 1.4% y-o-y in November 2016 ) and 5% in December 2017. Based on these numbers, we expect Wal-Mart to benefit from the positive holiday sales momentum this year. For the upcoming quarter, Wal-Mart also expects comparable sales growth for both Wal-Mart U.S. and Sam’s Club (ex. fuel) to range between 1.5% to 2.0%. For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.38 to $4.46, compared to previous guidance of $4.30 to $4.40.
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