W.Without question Walmart (WMT) has benefited immensely from strong demand for food, consumables, health and wellness, and general categories of goods during the pandemic. The company’s investments in technology and fulfillment have paid off significantly in Walmart’s ability to meet the needs of its customers in the country during the pandemic.
But can the retail giant maintain its growth rate and dominance in e-commerce in the coming quarters despite much more difficult year-to-year comparisons? This question will be answered, among other things, when Walmart releases the results for the second quarter of the fiscal year 2021 before the opening bell on Tuesday. While this isn’t directly reflected in the stock, which is only up 3% year-to-date and trailing after the S&P 500 index’s 18% rise, expectations for the company are still high for the quarter.
Walmart stock hasn’t done as well as investors would like. That could change after the earnings numbers, however, according to Bank of America analyst Robert Ohmes. Citing Walmart’s strong Q2 report as well as raised Q3 projections driven by the strength of the back-to-school / general inventory management, the analyst gave the stock a buy rating with a target price of $ 185, which calls for potential gains of 25%. Among other upbeat comments, Ohmes expects Walmart to continue growing its market share in groceries and online sales that may well outperform Amazon (AMZN) and indicates Walmart’s advanced e-commerce capabilities.
From its record top line beats to strong sales in the same store, to consistent execution across all product categories, to increasing margins, Walmart’s recent results have been nothing short of impressive. Analysts believe that Walmart has gained more market share in both e-commerce and sales in physical stores. Accordingly, Walmart stock looks attractive and offers a solid entry point for value investors who are also looking for growth drivers. However, the company is now facing much tougher conditions. Can it continue to deliver on Tuesday?
In the three months ending July, Wall Street expects Walmart to make $ 1.54 per share on sales of $ 135.92 billion. Compared to the same quarter last year, earnings per share were $ 1.56 on sales of $ 136.82 billion. For the full year ending in January, Walmart earnings are projected to increase 9% year-over-year to $ 5.98 per share, while full year revenue of $ 553.66 billion would decrease 1% year-over-year.
The recent decline in WMT inventories is likely due to the expected 1% year-over-year decline in sales in fiscal 2021. In addition, more moderate sales growth is forecast for the coming years, by 3% in 2022 and 4% in 2023. On the earnings side, after rising 9% this year, earnings per share are expected to decline about 5% in 2022, then increase 9.7% in 2023 to $ 6.85 per share. The question is, can Walmart accelerate sales growth while increasing its profit margins to increase long-term earnings per share.
In the first quarter, gross income rate increased 104 basis points while consolidated operating expenses remained relatively stable. As a result, the consolidated operating result increased by more than 32% in the first quarter. This was noteworthy given investor concerns that rising spending could hurt the quarter. However, total sales in the first quarter only increased 2.7%. And while the company saw ecommerce sales grow 37%, it was a notable slowdown from the 69% increase in the fourth quarter.
On Tuesday, investors will judge not only whether revenue growth can accelerate again, but also whether the company is issuing an upward forecast on its key operating metrics such as margins and sales in the same business.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
