Walmart earnings preview: Grocery sales expected to give the retail giant a boost
An expected boost from its grocery business is anticipated when Walmart Inc. reports fiscal fourth-quarter earnings before the bell on Feb. 19.
“Our proprietary Grocery Walmart custom-cut index data analysis points to a sequentially stronger grocery comp and we expect Walmart captured its fair share of a robust holiday season on the discretionary side, suggesting a comp of 3% to 3.5% is possible,” wrote BMO Capital Markets analysts led by Kelly Bania.
The FactSet consensus for comparative-store sales calls for 3.1% growth.
To be sure, Walmart’sWMT, +1.00% grocery business has always been huge, making it one of the biggest grocers in the U.S. However, competition is heating up as more options for where, and how, to buy food, have increased.
Coresight Research estimates that U.S. grocery-store sales in 2018 totaled $663.1 billion excluding “mass merchandisers” like Walmart Supercenters and internet-only retailers, up from $639.2 billion the previous year.
Amazon.com Inc. AMZN, -0.80% is the leader in online grocery. But grocery shopping broadly has been slow to move online, though the numbers are growing. Online grocery only accounted for 2.3% to 2.4% of nearly $1 trillion spent on food and beverages in 2018.
“Amazon is by far the most popular retailer for online grocery purchases,”Coresight wrote in its Jan. 31 report, “although its most popular services are not set up to serve large basket sizes.”
Coresight polled 435 adult U.S. internet users who had purchased groceries online over the previous year and 59.5% said they’d purchased groceries from Amazon.
“Otherwise, Walmart [25.5%], Kroger [8.1%] KR, +1.65% , Target [6.9%] TGT, +0.19% and Costco Wholesale [6.2%] COST, +0.53% are the only retailers with meaningful numbers of online grocery shoppers – and Walmart has a big lead among these other four retailers,” the Coresight report said.
BMO rates Walmart shares outperform with a $110 price target.
Taken together with the other parts of its business, analysts anticipate that Walmart’s earnings will showcase the efficacy of its growth efforts.
“In an era of increasing price transparency across U.S. retail, we believe Walmart is well positioned to leverage its significant investments in e-commerce, technology, supply chain and people in recent years,” BMO wrote.
“[W]e believe Walmart is uniquely positioned among U.S. retailers for potential long-term e-commerce profitability given its significant investments in its infrastructure and third-party marketplace, which we estimate is higher margin than first party.”
Walmart has an average overweight rating and average target price of $106.57, according to 32 analysts polled by FactSet.
What to expect:
Earnings: Walmart is expected to report earnings per share of $1.33, according to FactSet, even with last year.
Estimize, which crowdsources estimates from analysts, fund managers and academics, expects EPS of $1.35.
Walmart has beaten FactSet EPS expectations 13 out of the last 14 quarters.
Revenue: FactSet expects sales of $138.8 billion, up from $136.3 billion last year.
Estimize expects sales of $139.3 billion.
Walmart has missed FactSet sales expectations for the last two quarters.
Share price: Walmart shares have fallen 2.5% over the last three months, and are down 2.7% over the past year.
The Dow Jones Industrial Average DJIA, -0.09% has gained 1.8% over the last three months, and are up 2.5% for the last 12 months.
Also: 20 companies with zooming sales and fattening margins that can power their stocks forward
What analysts are saying:
-The Cowen Consumer Tracker shows that shopper overlap between Walmart and Amazon has declined year-over-year for the third consecutive quarter. On average, 83% of Walmart shoppers also visited Amazon, down from 85%.
Cowen analysts “acknowledge overlap remains incredibly high,” but think that percentage will continue to decline as the retailer improves merchandise selection, grows its omnichannel capabilities and increases its options for purchase fulfillment.
-Cowen analysts also found improved customer satisfaction with the total shopping experience.
“By category, most notable improvement in satisfaction was with prices and product quality,” Cowen wrote.
Prices at Amazon’s Whole Foods Market and across consumer brands at companies like Church & Dwight Co. CHD, +0.06% , Procter & Gamble Co. PG, -0.60% , and Clorox Co. CLX, +0.28% are rising, according to Wall Street Journal reports.
Cowen rates Walmart shares outperform with a $120 price target.
-Walmart, dollar stores and auto parts stores are among the retailers expected to be hurt by the delays or declines in tax refunds.
“We think companies that are most levered to lower income demographics will be impacted the most,” wrote UBS analysts led by Michael Lasser.
Still, UBS thinks tax refunds will total $40 billion to $70 billion, up 15% to 25% from last year.
“Importantly, lower to middle income households with multiple dependent children are likely to benefit the most,” wrote UBS.
-UBS also thinks that Walmart’s growth in India is at risk thanks to revised e-commerce rules imposed by the Indian government that favor local entities and prohibit foreign marketplaces from entering into exclusive launches on products like mobile phones.
“[C]hanges to the competitive environment could prevent Walmart from ever achieving profitability in India,” UBS wrote in a separate note published Feb. 11. “Flipkart will have to evolve in order to thrive in the new environment.”
UBS rates Walmart stock neutral with a $100 price target.
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