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Wal-Mart (WMT) Down 3% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Wal-Mart Stores, Inc. (WMT - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wal-Mart Tops Q1 Earnings on Higher Comps & Traffic
Wal-Mart reported better-than-expected earnings in first-quarter fiscal 2018, while revenues marginally lagged the Zacks Consensus Estimate.
Wal-Mart’s first-quarter fiscal 2018 earnings of $1.00 per share beat the Zacks Consensus Estimate of $0.96 by 4.2% and increased 2.0% from the year-ago earnings of $0.98 per share on higher comps. Earnings reached the top end of the guided range of $0.90 to $1.00 per share.
Quarter in Detail
Total revenue came in at $117.5 billion (including membership and other income). The figure fell short of the Zacks Consensus Estimate of $117.6 billion by 0.07% but increased 1.4% year over year. Currency impacted sales by approximately $1.21 billion. The decline in the International business was more than offset by growth in sales at Wal-Mart U.S and Sam’s Club divisions. On a constant currency basis, revenues improved 2.5% to $118.8 billion.
Total revenue comprised net sales of $116.5 billion (up 1.3% from the year-ago quarter and up 2.4% on a constant currency basis) and membership and other income of $1.0 billion (up 10.7% year over year).
Operating income declined 0.7% to $5.24 billion in the reported quarter as the company continued to invest in e-commerce initiatives to compete with the online retailer Amazon.com. Currency had a negative impact of $106 million on the same. On a constant currency basis, operating income increased 1.3%.
Segment Details
Wal-Mart U.S.: The segment posted net sales growth of 2.9% to $75.4 billion in the reported quarter, including the impact of fuel sales. Operating income increased marginally by 0.9% to $4.3 billion, despite incurring huge expenses as a result of e-commerce initiatives.
U.S. same-store sales (comps) for the 13-week period ended Apr 28 increased 1.5% compared with 1.0% comps growth in the prior-year quarter. This was the 11th consecutive quarter of positive comps. Comp sales growth reached the top end of the company’s expectations of 1−1.5% increase. While comp traffic improved 1.5%, average ticket declined 0.1% in the quarter. The impact of rising consumer spending was seen in improved traffic during the quarter. e-commerce sales positively impacted comp sales at Wal-Mart U.S. by 0.80%.
Wal-Mart International: Segment net sales, including fuel sales, declined 3.5% year over year to $27.1 billion. The same, however, increased 0.8% on a constant currency basis to $28.3 billion. Operating income declined 0.1% to $1.16 billion. On a constant currency basis, it grew 9.0%.
Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 2.8% to $13.9 billion. Sam’s Club operating income increased 0.2% to $414 million in the quarter.
Sam’s Club comps, excluding the impact of fuel sales, rose 1.6% compared with a growth of 0.1% in the prior-year quarter. Comp sales growth was better than the company’s expectations of around 1% growth. Comp traffic grew 1.1%, while ticket increased 0.5%. e-commerce sales positively impacted comps by approximately 0.8% in the quarter.
Other Financial Updates
Wal-Mart ended the quarter with cash and cash equivalents of $6.55 billion, total long-term debt of $33.8 billion, long-term capital lease obligations of $6.3 billion and shareholders’ equity of $76.1 billion.
At the end of first-quarter fiscal 2018, Wal-Mart generated cash flow from operations of $5.39 billion and incurred capital expenditures of $1.99 billion, resulting in free cash flow of $3.39 billion.
Wal-Mart paid $1.55 billion in dividends during the quarter. The company repurchased about 31 million shares worth $3.7 billion in the quarter, with shares worth $7.0 billion remaining out of $20 billion authorized in Oct 2015.
Guidance
Second-Quarter Fiscal 2018
Wal-Mart expects U.S. comp sales growth in the range of 1.5−2.0% for the 13-week period ending Jul 28. Sam’s Club comp sales, without the impact of fuel sales, are expected to increase 1–1.5%. The company expects adjusted earnings in the range of $1.00–$1.08 per share.
Fiscal 2018
The company has not provided any update on fiscal 2018 guidance during the current quarter. In fourth-quarter fiscal 2017, the company had forecasted adjusted earnings in the range of $4.20−$4.40 per share, assuming full-year effective tax rate around 32%.
Despite the company’s efforts to boost sales and regain investors’ confidence, it still faces many headwinds, which are likely to impact earnings in the near term. Higher e-commerce investments, declining international sales and currency headwinds are also expected to impact the results negatively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions higher for the current quarter compared to five lower.
At this time, the stock has a great Growth Score of 'A', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Wal-Mart (WMT) Down 3% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Wal-Mart Stores, Inc. (WMT - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wal-Mart Tops Q1 Earnings on Higher Comps & Traffic
Wal-Mart reported better-than-expected earnings in first-quarter fiscal 2018, while revenues marginally lagged the Zacks Consensus Estimate.
Wal-Mart’s first-quarter fiscal 2018 earnings of $1.00 per share beat the Zacks Consensus Estimate of $0.96 by 4.2% and increased 2.0% from the year-ago earnings of $0.98 per share on higher comps. Earnings reached the top end of the guided range of $0.90 to $1.00 per share.
Quarter in Detail
Total revenue came in at $117.5 billion (including membership and other income). The figure fell short of the Zacks Consensus Estimate of $117.6 billion by 0.07% but increased 1.4% year over year. Currency impacted sales by approximately $1.21 billion. The decline in the International business was more than offset by growth in sales at Wal-Mart U.S and Sam’s Club divisions. On a constant currency basis, revenues improved 2.5% to $118.8 billion.
Total revenue comprised net sales of $116.5 billion (up 1.3% from the year-ago quarter and up 2.4% on a constant currency basis) and membership and other income of $1.0 billion (up 10.7% year over year).
Operating income declined 0.7% to $5.24 billion in the reported quarter as the company continued to invest in e-commerce initiatives to compete with the online retailer Amazon.com. Currency had a negative impact of $106 million on the same. On a constant currency basis, operating income increased 1.3%.
Segment Details
Wal-Mart U.S.: The segment posted net sales growth of 2.9% to $75.4 billion in the reported quarter, including the impact of fuel sales. Operating income increased marginally by 0.9% to $4.3 billion, despite incurring huge expenses as a result of e-commerce initiatives.
U.S. same-store sales (comps) for the 13-week period ended Apr 28 increased 1.5% compared with 1.0% comps growth in the prior-year quarter. This was the 11th consecutive quarter of positive comps. Comp sales growth reached the top end of the company’s expectations of 1−1.5% increase. While comp traffic improved 1.5%, average ticket declined 0.1% in the quarter. The impact of rising consumer spending was seen in improved traffic during the quarter. e-commerce sales positively impacted comp sales at Wal-Mart U.S. by 0.80%.
Wal-Mart International: Segment net sales, including fuel sales, declined 3.5% year over year to $27.1 billion. The same, however, increased 0.8% on a constant currency basis to $28.3 billion. Operating income declined 0.1% to $1.16 billion. On a constant currency basis, it grew 9.0%.
Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, including fuel impact, of 2.8% to $13.9 billion. Sam’s Club operating income increased 0.2% to $414 million in the quarter.
Sam’s Club comps, excluding the impact of fuel sales, rose 1.6% compared with a growth of 0.1% in the prior-year quarter. Comp sales growth was better than the company’s expectations of around 1% growth. Comp traffic grew 1.1%, while ticket increased 0.5%. e-commerce sales positively impacted comps by approximately 0.8% in the quarter.
Other Financial Updates
Wal-Mart ended the quarter with cash and cash equivalents of $6.55 billion, total long-term debt of $33.8 billion, long-term capital lease obligations of $6.3 billion and shareholders’ equity of $76.1 billion.
At the end of first-quarter fiscal 2018, Wal-Mart generated cash flow from operations of $5.39 billion and incurred capital expenditures of $1.99 billion, resulting in free cash flow of $3.39 billion.
Wal-Mart paid $1.55 billion in dividends during the quarter. The company repurchased about 31 million shares worth $3.7 billion in the quarter, with shares worth $7.0 billion remaining out of $20 billion authorized in Oct 2015.
Guidance
Second-Quarter Fiscal 2018
Wal-Mart expects U.S. comp sales growth in the range of 1.5−2.0% for the 13-week period ending Jul 28. Sam’s Club comp sales, without the impact of fuel sales, are expected to increase 1–1.5%. The company expects adjusted earnings in the range of $1.00–$1.08 per share.
Fiscal 2018
The company has not provided any update on fiscal 2018 guidance during the current quarter. In fourth-quarter fiscal 2017, the company had forecasted adjusted earnings in the range of $4.20−$4.40 per share, assuming full-year effective tax rate around 32%.
Despite the company’s efforts to boost sales and regain investors’ confidence, it still faces many headwinds, which are likely to impact earnings in the near term. Higher e-commerce investments, declining international sales and currency headwinds are also expected to impact the results negatively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions higher for the current quarter compared to five lower.
Wal-Mart Stores, Inc. Price and Consensus
Wal-Mart Stores, Inc. Price and Consensus | Wal-Mart Stores, Inc. Quote
VGM Scores
At this time, the stock has a great Growth Score of 'A', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.