Wal-Mart Q1 Earnings Preview: E-Commerce Initiatives Could Boost Top Line

Wal-Mart (NYSE:WMT) is scheduled to announce its fiscal first quarter results on Thursday, May 18. The company had a fairly solid 2016, as its earning per share estimates came in ahead of market expectations throughout, despite the continuous slowdown in the company’s earnings due to increased e-commerce and marketing initiatives. The most striking development of 2016 was Wal-Mart’s comeback in the e-commerce space. The retailer added millions of items to its marketplaces, which helped it resume its online growth in 2016.

In fiscal Q4 (year ended in January), Wal-Mart’s revenue increased 1% year over year (y-o-y) to $130.9 billion on a reported basis, driven by growth in the domestic market due to its marketplace offerings and benefits from Jet.com, partially offset by the negative impact of food deflation and foreign currency fluctuations. The company also posted adjusted earnings per share of $1.30, down 13% y-o-y but near the upper end of its guidance range. Importantly, the company’s U.S. e-commerce sales increased 29% y-o-y in the fourth quarter. Wal-Mart has been investing big money to increase its online presence to compete with giant internet retailers such as Amazon (NASDAQ:AMZN). Going forward, we expect Wal-Mart’s growing online initiatives and increasing U.S. comparable sales to boost the company’s top line in the first quarter.

Developments In The Quarter

Wal-Mart has been on an acquisition spree since it acquired Jet.com, which transformed the company’s online operations and brought in a new team of e-commerce executives. The company recently acquired women’s online retailer ModCloth, outdoor gear seller MooseJaw and online shoe site ShoeBuy in this quarter. These acquisitions should provide Wal-Mart with a diverse product portfolio, along with increased digital marketing expertise, which could help the company face growing competition from Amazon. In addition, Wal-Mart also began providing free two-day shipping on orders of $35 or more instead of charging a membership fee of $49 per year through its existing shipping program in the quarter, primarily to compete with the popular Amazon Prime service. Also, the retailer rolled out a new Pickup discount on items recently, which would lower the prices on items if the customers choose to pick up their orders at a local store instead of opting for shipping. This could help attract more customers to the company’s burgeoning e-commerce platform.

Future Outlook

Wal-Mart anticipates a currency impact on net sales of approximately $3 billion for the fiscal 2018. On a reported basis, the company expects net sales growth of between 2% and 3%. In addition, the company also expects its capital expenditures (excluding acquisitions) to be approximately $11 billion for the full year. Moreover, it expects its full year adjusted EPS to range between $4.20 to $4.40, and the full year effective tax rate to be around 32%. The retailer anticipates its operating income to decline slightly in fiscal 2018, driven in part by continued strategic price investments, partially offset by a more disciplined approach to expenses.

For the first quarter, Wal-Mart expects comparable sales growth for Wal-Mart U.S. to range between 1.0% to 1.5%, and Sam’s club (ex. fuel) comparable sales to be around 1.0%. Additionally, the company also expects adjusted earnings per share in the range of $0.90 to $1.00 in the first quarter.

Please refer to our complete analysis for Wal-Mart  

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