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Sturdy E-commerce & Comps to Fuel Walmart's (WMT) Q3 Earnings
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Walmart Inc. (WMT - Free Report) is slated to release third-quarter fiscal 2019 results on Nov 15. We expect this retail behemoth to gain from robust efforts to boost e-commerce and delivery services. It also boasts a solid comparable store sales (comps) record and an impressive international business. However, we are cautious about the company’s interest burden stemming from the recently acquired stake in Flipkart as well as strained margins.
We note that Walmart’s bottom line surpassed estimates in three of the trailing four quarters, the average beat being 2.3%. Let’s see what’s in store for the company this time around.
Strong E-Commerce & Delivery Services
Walmart is trying every means to evolve with the changing consumer environment and compete with brick-and-mortar rivals along with e-Commerce king Amazon (AMZN - Free Report) . In this regard, the company is resorting to several e-commerce initiatives such as buyouts, alliances as well as improved delivery and payment systems. To this end, the company’s partnerships with Microsoft (MSFT - Free Report) and Rakuten as well as the buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth and Jet.com are noteworthy. Further, the Walmart2World money transfer service along with its Walmart Pay mobile payment system highlights the company’s focus on accelerating online business and making shopping convenient. Recently, the company unveiled plans to collaborate with PayPal (PYPL - Free Report) . Apart from easy money transfer, the deal is expected to aid Walmart add more customers
Apart from this, the company is making aggressive efforts to expand in the booming online grocery space, which was a major contributor to e-commerce sales in the second quarter. This is evident from the company’s deals with Postmates and DoorDash as well as the acquisition of last-mile delivery service Parcel. Walmart recently raised stakes in Dada-JD Daojia to 10% to strengthen last-mile delivery service and enhance omni-channel offering.
Such robust endeavors enabled the company’s U.S. e-commerce sales to soar 40% in the second quarter of fiscal 2019 compared with 33% rise recorded in the first quarter. Improved assortments and grocery pickups were the main drivers. Going ahead, management aims to achieve 40% U.S. e-commerce sales growth in fiscal 2019.
Robust International Business & Comps
Along with boosting online sales, Walmart is committed toward augmenting brick-and-mortar business. The company is on track with store remodeling to upgrade them with advanced in-store and digital innovations. Walmart is also gaining from compelling pricing strategy, which helps it attract customers. Owing to such upsides, U.S. comps (excluding fuel) rose 4.5% during the second quarter, driven by more than 2% improvement in traffic and ticket. Moreover, e-commerce sales had a positive impact on quarterly comp sales in Walmart U.S. by 100 basis points (bps). Notably, this marked the retailer’s 16th consecutive quarter of positive U.S. comps growth.
We note that the Zacks Consensus Estimate for third-quarter U.S. comps growth (excluding fuel) is pegged at an increase of 2.9% compared with a rise of 2.7% in the year-ago quarter.
We also expect Walmart to gain from initiatives to improve international business. To this end, the company is making consistent efforts to shift focus from underperforming areas to profitable regions like India and China. Walmart recently acquired 77% stake in India’s leading e-commerce entity, Flipkart.
While Walmart’s online strategies are driving its business, costs associated with investments in e-commerce expansion and technological advancements; the mix impact from growing e-commerce operations and the retailer’s compelling pricing strategy are weighing on margins. In first-quarter fiscal 2019, gross margin shrank 15 bps. It contracted 17 bps in the second quarter due to price investments in various markets and higher transportation costs. Management had earlier projected margins to stay under pressure in fiscal 2019. In addition to this, increased interest burden stemming from the Flipkart deal also raise concerns.
Though the Flipkart deal is expected to weigh on Walmart’s performance in the near term, it is likely to bolster e-commerce sales. Moreover, we expect this supermarket giant’s sales-driving efforts to offset the aforementioned hurdles and enable it to continue delivering solid performance.
Estimates Look Bright
Backed by robust comps trends and dedicated efforts to drive traffic globally, management raised earnings per share guidance for fiscal 2019. This keep us encouraged about the company’s performance in the third quarter. Well, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at $1.02, reflecting a rise from $1.00 in the year-ago quarter.
Further, the consensus mark for overall sales is pegged at $124.8 billion, reflecting growth of nearly 1.3% from the year-ago quarter.
Zacks Model
Our proven model doesn’t show that Walmart is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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Sturdy E-commerce & Comps to Fuel Walmart's (WMT) Q3 Earnings
Walmart Inc. (WMT - Free Report) is slated to release third-quarter fiscal 2019 results on Nov 15. We expect this retail behemoth to gain from robust efforts to boost e-commerce and delivery services. It also boasts a solid comparable store sales (comps) record and an impressive international business. However, we are cautious about the company’s interest burden stemming from the recently acquired stake in Flipkart as well as strained margins.
We note that Walmart’s bottom line surpassed estimates in three of the trailing four quarters, the average beat being 2.3%. Let’s see what’s in store for the company this time around.
Strong E-Commerce & Delivery Services
Walmart is trying every means to evolve with the changing consumer environment and compete with brick-and-mortar rivals along with e-Commerce king Amazon (AMZN - Free Report) . In this regard, the company is resorting to several e-commerce initiatives such as buyouts, alliances as well as improved delivery and payment systems. To this end, the company’s partnerships with Microsoft (MSFT - Free Report) and Rakuten as well as the buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth and Jet.com are noteworthy. Further, the Walmart2World money transfer service along with its Walmart Pay mobile payment system highlights the company’s focus on accelerating online business and making shopping convenient. Recently, the company unveiled plans to collaborate with PayPal (PYPL - Free Report) . Apart from easy money transfer, the deal is expected to aid Walmart add more customers
Apart from this, the company is making aggressive efforts to expand in the booming online grocery space, which was a major contributor to e-commerce sales in the second quarter. This is evident from the company’s deals with Postmates and DoorDash as well as the acquisition of last-mile delivery service Parcel. Walmart recently raised stakes in Dada-JD Daojia to 10% to strengthen last-mile delivery service and enhance omni-channel offering.
Such robust endeavors enabled the company’s U.S. e-commerce sales to soar 40% in the second quarter of fiscal 2019 compared with 33% rise recorded in the first quarter. Improved assortments and grocery pickups were the main drivers. Going ahead, management aims to achieve 40% U.S. e-commerce sales growth in fiscal 2019.
Robust International Business & Comps
Along with boosting online sales, Walmart is committed toward augmenting brick-and-mortar business. The company is on track with store remodeling to upgrade them with advanced in-store and digital innovations. Walmart is also gaining from compelling pricing strategy, which helps it attract customers. Owing to such upsides, U.S. comps (excluding fuel) rose 4.5% during the second quarter, driven by more than 2% improvement in traffic and ticket. Moreover, e-commerce sales had a positive impact on quarterly comp sales in Walmart U.S. by 100 basis points (bps). Notably, this marked the retailer’s 16th consecutive quarter of positive U.S. comps growth.
We note that the Zacks Consensus Estimate for third-quarter U.S. comps growth (excluding fuel) is pegged at an increase of 2.9% compared with a rise of 2.7% in the year-ago quarter.
We also expect Walmart to gain from initiatives to improve international business. To this end, the company is making consistent efforts to shift focus from underperforming areas to profitable regions like India and China. Walmart recently acquired 77% stake in India’s leading e-commerce entity, Flipkart.
Walmart Inc. Price, Consensus and EPS Surprise
Walmart Inc. Price, Consensus and EPS Surprise | Walmart Inc. Quote
Strained Margins & Flipkart Deal Raise Concerns
While Walmart’s online strategies are driving its business, costs associated with investments in e-commerce expansion and technological advancements; the mix impact from growing e-commerce operations and the retailer’s compelling pricing strategy are weighing on margins. In first-quarter fiscal 2019, gross margin shrank 15 bps. It contracted 17 bps in the second quarter due to price investments in various markets and higher transportation costs. Management had earlier projected margins to stay under pressure in fiscal 2019. In addition to this, increased interest burden stemming from the Flipkart deal also raise concerns.
Though the Flipkart deal is expected to weigh on Walmart’s performance in the near term, it is likely to bolster e-commerce sales. Moreover, we expect this supermarket giant’s sales-driving efforts to offset the aforementioned hurdles and enable it to continue delivering solid performance.
Estimates Look Bright
Backed by robust comps trends and dedicated efforts to drive traffic globally, management raised earnings per share guidance for fiscal 2019. This keep us encouraged about the company’s performance in the third quarter. Well, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at $1.02, reflecting a rise from $1.00 in the year-ago quarter.
Further, the consensus mark for overall sales is pegged at $124.8 billion, reflecting growth of nearly 1.3% from the year-ago quarter.
Zacks Model
Our proven model doesn’t show that Walmart is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although Walmart currently carries a Zacks Rank #3, its Earnings ESP of -0.70% reduces chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>