What To Expect From Walmart’s Q3

Walmart (NYSE: WMT) is scheduled to report its third quarter results on Thursday, November 15. The company has had a solid fiscal year so far, as both its earnings and revenues came in ahead of market expectations for the first half. In the first six months of fiscal 2018, the company’s revenue increased 4% year over year (y-o-y) to $251 billion, driven by growth in the domestic market due to its marketplace offerings. Walmart U.S. delivered a strong top-line performance, with comparable sales of 3.5%. Globally, on a constant currency basis, the company’s e-commerce sales increased 40% in the Q2. In the company’s other segments, Walmart’s international sales grew 8% y-o-y to $60 billion during the fiscal first half of 2018, led by strength at Walmex. On the other hand, Sam’s Club revenues declined marginally y-o-y, negatively impacted by tobacco.

Our $98 price estimate for Walmart’s stock is slightly below the current market price. We have created an interactive dashboard Can Walmart Continue Its Strong Growth In The Second Half Of The Year? which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Walmart saw its stock gain nearly 50% in 2017 and is up slightly over the course of 2018. The retailer witnessed a relative slowdown in the company’s e-commerce growth in the fiscal first quarter, to 33% y-o-y from 60%+ in the first three quarters of fiscal 2018 (year ending January 2018), which resulted in pressure on the company’s stock. However, the stock bounced back after the company posted strong fiscal Q2 results. Going forward, we expect the company to continue to post an increase in revenue growth rate in Q3, driven by growth across operating segments. We also expect the GAAP earnings pressure to continue, due to investments in technology and a rise in employee wages. We forecast the company to post adjusted earnings per share of around $1.05 in the third quarter, compared to $1.00 in Q3 fiscal 2018. Also, we expect online grocery to drive some growth for Walmart, though the accompanying expenses could result in margin pressure.

Fiscal 2019 Outlook

Walmart has lifted its full-year adjusted EPS guidance to $4.90 to $5.05 from its previous range of $4.75 to $5.00. The retail giant also expects net sales growth of ~2%, compared to a prior range of 1.5% to 2.0%. In addition, the company expects comparable sales of around 3%, which compares to the previous guidance of at least +2%. Management is aggressively rolling out grocery pickup and delivery in the U.S. and expanding omnichannel initiatives in Mexico and China.

We expect Walmart to generate around $511 billion in revenues in fiscal 2019, and earnings of almost $14 billion. Of the total expected revenues in fiscal 2019, we estimate $330 billion in the Walmart U.S. business, almost $120 billion for the International business, and nearly $58 billion for the Sam’s Club business. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square foot in fiscal 2019. We expect Walmart’s fiscal 2019 store count in the U.S. to be over 4800, with average square footage per store of 147k and revenue per square foot of $466, translating into $330 billion (+3% y-o-y) in domestic revenues in fiscal 2019. In addition, we also expect close to 6370 stores in international markets with an average square footage per store of 58k and revenue per square foot of $319, translating into $119 billion (+1% y-o-y) in international revenues in the same period. On similar lines, we expect Sam’s Club revenues to reach $58 billion (-2% y-o-y) in fiscal 2019, with 599 Sam’s Club stores, 134k square footage per store and $724 of revenue per square foot. We expect a decline here on the account of the closing of 63 Sam’s Club locations.

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