Walmart Comps & E-Commerce Growth Impress: What's Next for WMT?

Christopher Vargas

Walmart WMT reported stronger-than-projected second quarter earnings before the opening bell Thursday. WMT shares rose over 5% following the release and are now up 20.4% YTD.

Walmart’s earnings beat helped the stock market rebound after the worst day on Wall Street of the year. On top of that, Walmart’s compare sales impressed once again and e-commerce sales surged.

One of WMT’s biggest competitors, Target TGT, is scheduled to report its earnings on Wednesday, August 21. Target stock is up 24.9% YTD, and has outpaced Walmart, but they both trail behind Costco COST who is up 33.3%.

The company has reported solid figures in 2019, but can its positive momentum carry on over into the second half of 2019? Let’s take a closer look at how the world’s largest retailer performed in Q2 and what to expect moving forward.

Q2 Performance

Walmart’s strong quarterly report helped the stock market rebound after the DJIA tanked over 800 points yesterday. WMT was focused on building on the core of its US business, online operations, and investments in grocery. Earlier in the year, Walmart warned that the ongoing trade war between the US and China would force it to pass higher prices onto WMT consumers. The company sources about two-thirds of its goods domestically while the remaining one-third comes from foreign countries, including China.

Walmart reported earnings of $1.27 per share to beat our estimate by 4.1%, though they did fall 1.55% from the previous-year's quarter. The company’s Q2 revenue jumped 1.8% to $130.38 billion

The company’s U.S. Walmart segment posted positive gains for the 20th consecutive quarter, up 2.9% to $85.2 billion. “Customers are responding to the improvements we’re making; the productivity loop is working and we’re gaining market share,” CEO Doug McMillion commented. International Walmart sales dropped 1.1% to $29.1 billion and Sam’s Club revenue popped 1.9% to $15 billion.

Walmart’s e-commerce sales grew 37%, which helped boost the company’s quarterly numbers. The retail giant was also aided by Amazon’s (AMZN) Prime Day in which WMT offered similar deals to compete. Walmart’s gradual roll out of next day delivery across the country, which now reaches 75% of the US population, also boosted online business sales.

Q3 and Beyond Outlook

Zacks Consensus Estimates currently project WMT to post a top-line gain of 3.2% to reach $128.9 billion while earnings are expected to fall 1.85% to $1.06 in Q3 2020 (estimates can vary following today’s report).

U.S. Walmart sales are forecasted to continue to grow in Q3, up 2.97% to $82.98 billion. International Walmart sales are expected to rally 5.52% to $30.38 billion. The company’s Sam’s Club segment is also expected to climb 2.61% to $14.9 billion in Q3.

Looking ahead to the company’s full fiscal year, estimates call for total sales to pop 2.39% to $526.69 billion and for earnings to slip 1.43% to $4.84 per share. U.S. Walmart revenue is expected to grow 2.81% to $340.98 billion.

Walmart currently sports a Zacks Rank #2 (Buy) and has consistently beaten earnings estimates. The company has an average EPS surprise of 7.32% over the previous four reported quarters. Additionally, fiscal 2020 estimate revisions have trended upwards for the retail giant.

Wall Street will watch how WMT’s e-commerce and delivery initiatives play out and if they continue to drive growth. For instance, Walmart recently announced an in-home delivery service. In China, the company launched a new delivery app called Daojia. And the firm plans to invest $1.2 billion to upgrade its logistics network in China.

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