What To Expect From Walmart’s Fiscal 2019

Walmart‘s (NYSE: WMT) recent fiscal third quarter earnings came in ahead of market expectations, while revenues missed consensus. On a reported basis, the company’s revenue increased 1% year over year (y-o-y) to $125 billion, driven by growth in the domestic market due to its marketplace offerings. Walmart’s adjusted EPS grew by 8% y-o-y to $1.08. Walmart U.S. delivered a strong top-line performance, with comparable sales of 3.4%, driven by a 1.2% increase in customer traffic and a 2.2% growth in ticket size in Q3. Overall, e-commerce contributed approximately 140 basis points to the segment’s comparable sales growth in the third quarter. Globally, on a constant currency basis, the company’s e-commerce sales increased 43% in the quarter. In the company’s other segments, Walmart’s international sales declined 3% y-o-y to $29 billion, driven by the sale of a majority stake in Walmart Brazil and negative currency impacts. On the other hand, Sam’s Club revenues declined 2% y-o-y, negatively impacted by tobacco. However, Sam’s Club comparable sales grew 3.2% y-o-y (ex. fuel) in the quarter, led by a solid jump in traffic.

Our $103 price estimate for Walmart’s stock is slightly ahead of the current market price. We have created an interactive dashboard Walmart Could Likely Benefit From Higher Comparable Sales In Fiscal 2019, 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, but it has marginally declined over the course of 2018 despite strong financial results. This was largely due to a relative slowdown in the company’s e-commerce growth in fiscal 2019 so far (33% – 43%), which compared to 50%+ levels in the first three quarters of fiscal 2018 (year ending January 2018). In addition, Walmart’s shareholders also seem to be concerned about the company’s shrinking margins and increased costs. Going forward, we expect the company to continue to post an increase in its revenue growth rate, 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. In addition, we expect online grocery to drive some growth for the company, though the accompanying expenses could result in further margin pressure.

Fiscal 2019 Outlook

Walmart expects its full-year adjusted EPS to range between $4.75 and $4.85. In addition, the company expects comparable sales of at least 3%, which compares to the previous guidance of at least +2%. The retailer’s 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 $513 billion in revenues in fiscal 2019, and earnings of almost $14 billion. Of the total expected revenues in fiscal 2019, we estimate $331 billion in the Walmart U.S. business, almost $119 billion for the Walmart 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 $468, translating into $331 billion (+4% y-o-y) in domestic revenues for 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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