Walmart (WMT) Down 5.1% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Walmart (WMT). Shares have lost about 5.1% 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 drivers.
Walmart Q1 Earnings & Sales Top Estimates
Walmart posted robust first-quarter fiscal 2021 results, wherein adjusted earnings came in at $1.18 per share, surpassing the Zacks Consensus Estimate of $1.10. Moreover, earnings grew 4.4% year over year.
Total revenues grew 8.6% to $134.6 billion. The year-over-year upside was driven by growth in all segments. The Zacks Consensus Estimate was pegged at nearly $134 billion. Further, the top line was driven by an unexpected rise in demand for products across different categories in the wake of the coronavirus outbreak.
Consolidated gross profit margin contracted 66 basis points (bps) to 23.7% due to carryover of last year’s price investments, markdowns in general merchandise, and the shift in sales mix to lower-margin channels and categories. Gross margin in Walmart U.S. contracted 113 bps due to the same factors.
Consolidated operating income rose 5.6% to $5.2 billion. On a constant-currency (cc) basis, operating income advanced 6.6% to $5.3 billion. The operating income was adversely impacted by various costs related to COVID-19, like higher wages and benefits, along with costs associated with sanitization and other safety measures. The company incurred incremental COVID-19-related costs of about $900 million. On a cc basis, total revenues rose 9.7% to $135.9 billion.
Segment Details
Walmart U.S.: The segment’s net sales grew 10.5% to $88.7 billion in the quarter. U.S. comp sales (or comps), excluding fuel, improved 10% on the back of a 16.5% rise in ticket, partly negated by a 5.6% fall in transactions. Comps were fueled by growth in food, health & wellness, consumables and some general merchandise categories, partly countered by softness in discretionary categories like apparel. Further, e-commerce sales drove comps by 390 bps. E-commerce sales soared 74% on strength in grocery pickup and delivery, walmart.com and the marketplace. The company saw an increased shift to online shopping, given the increase in stay-at-home trends. However, Walmart announced plans of discontinuing Jet.com, as the company is largely gaining from the Walmart.com brand.
As of the first quarter, Walmart U.S. had nearly 3,300 pickup locations and more than 1,850 same-day grocery delivery locations. Further, the company launched Express Delivery during the quarter. It closed two Supercenters and one Neighborhood Market, alongside remodeling roughly 80 stores in the quarter. Operating income at the Walmart U.S. segment grew 3.9% to $4.3 billion.
Walmart International: Segment net sales rose 3.4% to $29.8 billion. At cc, net sales advanced 7.8% to $31 billion, with nine out of 10 markets registering positive comps. Results gained from stockpiling trends, though the closure of stores and e-commerce operations in Central America, India and South Africa partly hurt the performance. Operating income (at cc) rose 15.6% to $0.9 billion.
Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales rise of 9.6% to $15.2 billion. Sam’s Club comps, excluding fuel, grew 12%. Comps were hurt by lower tobacco sales to the tune of around 410 bps. While transactions grew 11.9%, ticket climbed marginally by 0.1%. E-commerce fueled comps by 170 bps. Markedly, e-commerce sales jumped 40% at Sam’s Club. Segment operating income came in at $0.5 billion, up 9.5% year over year.
Other Financial Updates
In the first quarter of 2021, this Zacks Rank #3 (Hold) company generated operating cash flow of $7 billion and incurred capital expenditures of $1.8 billion, resulting in free cash flow of $5.3 billion. The company allocated $1.5 billion toward dividend payments and made share buybacks worth $0.7 billion during the quarter.
COVID-19 Updates
Management is committed toward keeping its business going amid the pandemic, as part of which it has undertaken several measures to support its employees and customers. The company announced special cash bonuses for workers, speeded up first-quarter bonus payments, offered face masks and gloves, created a COVID-19 emergency leave policy and implemented remote working for office employees, among other efforts. To support customers, Walmart lowered store hours to ensure proper sanitization, enhanced delivery and pickup services, launched pickup in China, expanded online grocery capacity in the U.K. and introduced contact-less delivery in Canada, to name a few. Also, the company announced a partnership between Uber and Flipkart for the delivery of daily essentials. Considering the uncertainty surrounding coronavirus, Walmart withdrew its guidance for fiscal 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
Currently, Walmart has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Outlook
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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