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What’s in Store for Wal-Mart (WMT) This Earnings Season?

Zacks

Retail giant Wal-Mart Stores Inc. WMT, is set to report fourth-quarter fiscal 2017 results on Feb 21. The question lingering in investors’ minds is, whether the company will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. In fact, the company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 5.1%.

Wal-Mart forms part of the Retail-Wholesale sector. Per the latest Zacks Earnings Preview, we note that the above mentioned sector’s earnings growth looks disappointing. Total earnings for the sector are estimated to decline 1.0%, while revenues are projected to improve 4.8%.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise


Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Let’s delve deeper how things are shaping up for this announcement.

Which Way Are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has remained unchanged over the past 30 days and is currently pegged at $1.30, down 12.8% from $1.49 delivered in the year-ago quarter. Analysts polled by Zacks expect revenues of $130.9 billion, up 1% from the prior-year period.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Wal-Mart is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Wal-Mart has an Earnings ESP of 0.77% as both the Most Accurate estimate of $1.31 is higher than the Zacks Consensus Estimate of $1.30. The company has a positive ESP, which increases the predictive power of earnings beating estimates. However, it carries a Zacks Rank #4 (Sell). However, it is to be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing the Quarter

Wal-Mart has been striving to understand the evolving needs of its customers to regain their confidence and boost sales. It has delivered positive comps in the U.S. in the last nine quarters. Moreover, traffic improved for the eighth consecutive quarter, owing to the company’s efforts to modernize stores for higher footfall and improvement in consumer spending. The company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2017 results.

Wal-Mart expects U.S. comp sales growth in the range of 1−1.5% for the 13-week period ending Jan 27. Sam’s Club comp sales, without the impact of fuel sales, are expected in the range of 1−1.5% for the fourth quarter.

Coming to the share price movement, Wal-Mart’s shares have increased 4.2% in the past one year, little higher than the Zacks categorized Retail-Supermarkets industry’s growth of 2.6%.

While Wal-Mart posted positive earnings streak for the fifth consecutive quarter, top line remains sluggish due to the deflationary pressure the industry is grappling with.

Wal-Mart is also making huge investments in e-commerce initiatives to compete with the biggest online retailer, Amazon.com AMZN. The company is also making efforts to improve its customer service. In this regard, on Jan 31, the company started offering free two-day shipping to U.S. shoppers on a minimum order of $35 on over 2 million items and that too, without any membership fee.

The company competes with Amazon’s Prime shipping program, which charges customers $99 a year for two-day shipping with additional features like a streaming video service. This project will replace Wal-Mart's existing shipping program named 'Shipping Pass' that charge shoppers an annual membership fee of $49.

In addition to offering two-day shipping to stores, Wal-Mart continues to offer same-day store Pickup on many items and Online Grocery Pickup at more than 600 locations across the country. The company intends to expand this service in the coming year.

Wal-Mart is also expanding in e-commerce business through acquisitions. Earlier in Feb 2017, Wal-Mart increased its stake in Chinese eCommerce website, JD.com Inc., to 12.1%, up from the 10.8% stake it had in Oct 2016, and its 5.9% stake in Jun 2016.

After the acquisition of Jet.com, Wal-Mart is also aiming to acquire a stake in India's largest eCommerce firm, Flipkart Online Services Pvt., in order to expand in the fast-growing online retail market. Recently on Dec 30, Jet.com acquired Boston-based footwear-shopping website ShoeBuy, which will give Jet.com access to expand in the footwear industry.

Moreover, the Bentonville, AR-based company is paying higher wages to its workers and training them to improve its stores performance. However, these initiatives have increased expenses for the company. This, along with unfavorable currency, will take a toll on earnings.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Fred’s Inc. FRED has an Earnings ESP of +15.79% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar Tree, Inc. DLTR has an Earnings ESP of +0.75% and holds a Zacks Rank #2.

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