On The Fly: What to watch in Wal-Mart earnings report

Wal-Mart (WMT) is scheduled to report results of its first quarter before the market open on Thursday, November 16, with a conference call scheduled for 7:00 am EDT. What to watch for: 1. OUTLOOK: Wal-Mart previously forecast fiscal 2019 EPS of $4.75-$5.00 on net sales growth of 1.5%-2%. The initial Street forecast for FY EPS was $4.97 and revenue of $511.94B, but the consensus has since moved lower to $4.93 and $510.81M, respectively. In its last earnings report, the company said it was moving to an annual guidance framework with its quarterly updates, and that while there may be fluctuations within the quarters, "we believe EPS growth will be relatively consistent across the year." Earlier this month, Walmart forecast a negative impact to FY19 EPS of 25c-30c from the Flipkart deal. Stephens analyst Ben Bienvenu said he believes that consensus expectations regarding Walmart's Q1 results are achievable, though he noted that e-commerce growth in the quarter may come in below the company's annual guidance for about 40% growth. Still, easier e-commerce comparisons as the year progresses make its annual goals doable. 2. FLIPKART: Earlier this month, Walmart outbid Amazon (AMZN) to acquire a controlling stake in Indian online retailer Flipkart. Walmart will pay about $16B for an initial stake of about 77% in Flipkart. "India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market," Walmart CEO Doug McMillon said. The company will maintain Flipkart's brand. Walmart will also maintain the 21 stores it already has in India. Walmart said in a regulatory filing that it may take Flipkart public in as early as four years. Walmart is also nearing deals in developing economies following its Flipkart agreement, the Financial Times reported, citing McMillon. Loop Capital analyst Andrew Wolf is positive on the deal longer term, given that India's retail market is expected to grow at 9% per year over the next 5 years and in light of the company's minimal store presence in India. In the medium term however, Wolf said the investment will be "meaningfully dilutive" to earnings, weighing on the stock. Morgan Stanley analyst Simeon Gutman questioned why the company is investing outside the U.S. market, stating that it could have instead accelerated its third-party marketplace infrastructure, stepped up its partnership with Google Home (GOOG) to better compete with Amazon's Alexa, or intensified domestic investments in price and fulfillment. However, he added that the deal prevents Amazon, for now, from building an "insurmountable" advantage in the important Indian market. 3. COMPETITION: Retailers like Wal-Mart have been hurt by an increase in online shopping on sites like Amazon rather than at brick-and-mortar stores. Walmart will begin offering prepared meals and is also launching four $15 meal-kit options in stores in an effort to sell more food and attract customers from restaurant chains. The company, which is looking to improve its grocery business to compete with restaurants as well as Amazon, Aldi, and Blue Apron (APRN), currently offers ten different prepared meals in 250 stores and will expand the program to 2,000 locations by year's end. 4. UPSCALE INITIATIVES: Walmart has teamed up with Lord & Taylor, part of the Hudson's Bay (HBAYF) brand portfolio, to create an online store on Walmart.com that will offer about 125 fashion brands, including Tommy Bahama, La La Anthony, H Halston and Effy. The new "premium" shopping destination reflects Walmart's efforts to attract more upscale customers. Other recent initiatives have been the acquisitions of clothing sites Bonobos and Modcloth, as well as starting its own bedding and mattress line, which are sold exclusively online. According to comScore, the Lord & Taylor website attracted about 2.2M unique visitors in April, compared with the 101M visitors to Walmart.com.

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