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A month has gone by since the last earnings report for Walmart (WMT). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Walmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Walmart Q3 Earnings Beat Estimates on Robust Demand
Walmart posted another strong quarter with the release of its third-quarter fiscal 2021 numbers. During the quarter, both top and bottom lines beat the Zacks Consensus Estimate and increased year over year. Adjusted earnings came in at $1.34 per share, which easily surpassed the Zacks Consensus Estimate of $1.19. Moreover, earnings grew 15.5% from adjusted earnings per share of $1.16 reported in the year-ago period.
Total revenues grew 5.2% to $134.7 billion. On a constant-currency or cc basis, total revenues advanced 6.1% to $135.8 billion. The consensus mark stood at $133 billion. The top line continued being driven by the burgeoning demand for products across different categories amid the coronavirus crisis.
Consolidated gross profit margin expanded 50 basis points (bps) to 25%, including favorable contributions from all operating segments. Gross margin was backed by elevated pandemic-led demand. Gross margin in Walmart U.S. grew 33 bps on prudent sourcing efforts, reduced markdowns, better e-commerce margins and enhanced product mix, partly affected by the last year’s price investments.
Consolidated operating income grew 22.5% to $5.8 billion. Adjusted operating income at cc rose 16.4% on the back of solid results in all operating segments. The company said that it saw solid underlying productivity in stores as well as e-commerce. Consolidated operating expenses as a percentage of sales dropped 18 bps to 21.4%. The company incurred roughly $0.6 million as additional costs related to COVID-19.
Walmart U.S.: The segment’s net sales grew 6.2% to $88.4 billion in the quarter. U.S. comp sales (or comps), excluding fuel, improved 6.4% on the back of a 24% rise in ticket, partly negated by a 14.2% fall in transactions. Comps were fueled by strength in core categories like general merchandise, food and health & wellness. Walmart continued to see customers consolidating their shopping trips, leading to a bigger average basket size. Further, transaction volumes increased, thanks to extended store hours. Also, the company continued seeing an increased shift toward e-commerce.
Sales accelerated in September owing to delayed back-to-school spending, with the momentum continuing in October. Grocery sales were also robust, thanks to solid food comps. E-commerce sales drove comps by 570 bps. E-commerce sales soared 79% with strength across all channels, including robust traffic at Walmart.com. Notably, marketplace and pickup & delivery sales jumped at a triple-digit rate. As of the third quarter, Walmart U.S. had 3,600 pickup locations and 2,900 same-day delivery locations. The company remodeled 205 stores in the quarter, alongside opening a new store. Adjusted operating income at the Walmart U.S. segment grew 9.9% to $4.6 billion.
Walmart International: Segment net sales rose 1.3% to $29.6 billion, including currency headwinds of about $1.1 billion. At cc, net sales grew 5% to $30.6 billion on the back of Walmex, Canada and Flipkart. The company saw eight out of 10 markets registering positive comps. However, the company continued witnessing pandemic-related operational hurdles, particularly in Central America and Africa. E-commerce sales had a positive contribution of 14% to total segment sales, courtesy of solid omnichannel capacities. Adjusted operating income (at cc) rose 22.4% to $1.1 billion.
Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales rise of 8.3% to $15.8 billion. Sam’s Club comps, excluding fuel, grew 11.1%. Comps were partially hurt by lower tobacco sales to the tune of around 420 bps. While transactions grew 6.8%, ticket climbed 4%. The segment benefited from solid new member sign-ups as well as renewal rates, especially Plus memberships. E-commerce fueled comps by 230 bps. Markedly, e-commerce sales jumped 41% at Sam’s Club on the back of a robust direct-to-home show and increasing contribution from curbside pickup. Segment operating income came in at $0.4 billion, up 31.8% year over year.
Other Financial Updates & Developments
Year to date in fiscal 2021, the company generated operating cash flow of $22.9 billion and incurred capital expenditures of $6.4 billion, resulting in free cash flow of $16.4 billion. The company allocated $1.5 billion toward dividend payments and $0.5 billion toward share buybacks during the third quarter. Walmart ended the quarter with cash and cash equivalents of $14.3 billion, long-term debt (including lease obligations) of nearly $61.6 billion and total equity of $87.5 billion.
During the third quarter, it unveiled the Walmart + membership program; announced Black Friday Deals for Days; unveiled drone delivery pilots in the United States with Flytrex, Zipline and DroneUp; declared a pilot with Cruise to test grocery delivery, introduced Walmart Insurance Services and opened three Walmart Health Centers in Georgia, among many other important developments. The company also announced the sale of Asda, as well as its Argentina business. Additionally, Walmart has announced a deal to divest a major stake in Seiyu (Walmart’s subsidiary in Japan) to KKR and Rakuten.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Walmart has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Walmart has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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