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  • Earnings
  • disruptive innovation

Supply chains to hit third-quarter earnings and the Walmart share price?

The world’s largest retailer, Walmart [WMT], is expected to report a 0.4% increase in revenues and 3% rise in earnings when it details its third-quarter figures on 16 November.

Analysts expect the group, which runs more than 10,500 stores worldwide, to reveal revenues of $135.19bn and earnings per share of $1.38.

Revenue has been boosted as more people coming back into its stores as COVID-19 vaccination rates rise, and on continued demand for meals and essentials as many people hang on to the habit of eating and working at home.

Its online service is also expected to grow over the period as Walmart benefited from its same-day delivery, pick-up in store, kerbside pick-up and contactless payment options.

The company recently announced plans to invest in a new automated fulfilment centre and automated grocery distribution centre in Dallas, Texas. This promises to boost its supply chain network and accelerate deliveries into store and online.

Beyond this, Walmart is spending cash on drones and autonomous vehicles to help with last-mile deliveries to customers.

 

 

Pandemic swings

Over the last 12 months, the Walmart share price has hardly budged, and hovered at around $147. Nonetheless, over that time it has seen lows of $127 in early March as society began to re-open and it was suspected that supermarkets would miss out on the stellar lockdown demand.

The share price fluctuations are due to the course of the pandemic as the Delta variant brought cases and concern back up again over the summer, with the threat of inflation and supply chain squeezes putting pressure on prices and margins.

In its second quarter, Walmart reported earnings per share of $1.78 against analyst expectations of $1.57. Its revenues of $141.05bn also beat forecasts of $137.17bn.

In an interview with CNBC, chief financial officer Brett Biggs said, “Customers have flocked to stores for items like luggage, party supplies and clothes. They are coming out of hibernation.”

“Customers have flocked to stores for items like luggage, party supplies and clothes. They are coming out of hibernation” - Walmart CFO Brett Biggs

 

 

Online and baby drivers

Analysts certainly like what they saw, with Goldman Sachs adding Walmart to its ‘Americas Conviction List’.

Analyst Kate McShane reiterated a ‘buy’ rating and a price target of $180. “Walmart is in a position to grow EBIT dollars along with continued investments on greater scale of its ecommerce business, improving mix, and growth from higher-margin ancillary businesses like advertising,” McShane wrote in a note on Invezz.

Morgan Stanley has an ‘overweight’ rating and a $170 target price thanks to surging membership of premium loyalty programme Walmart+. It now has 14 million members, up from 10 million earlier this year. “The program is still adding new members, though at a slower pace since the summer,” analyst Simeon Gutman said.

Walmart+ launched last year, offering perks such as same-day delivery and go shopping.

Bank of America also tips Walmart to benefit from a pandemic-led baby boom with obvious demands for food, nappies and milk.

“Walmart is in a position to grow EBIT dollars along with continued investments on greater scale of its ecommerce business, improving mix, and growth from higher-margin ancillary businesses like advertising” - Goldman analyst Kate McShane

 

 

Holiday high hopes

Analysts will be looking closely at the numbers both in-store and online to gauge customer trends as the pandemic, though fading, remains a challenge to all.

Walmart will be asked about what impact investment in delivery options for customers, infrastructure and other high COVID-19-related staff costs is having on margins. The duration of the supply chain squeezes, and pressure on store prices will be the key to upcoming quarterly performance.

Finally, there will be a focus on its online delivery and payment services. Analysts at Zacks are extremely bullish about Walmart’s long-term prospects in this area. “The historic firm is also built to challenge Amazon for years to come as it builds out its ecommerce offerings and beyond,” wrote Benjamin Rains.

That would have Walmart investors dancing in the aisles.

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