Since the coronavirus pandemic sent markets into a tailspin earlier this year, few companies have come out of their earnings announcements looking good. But big-box retailers such as Walmart [WMT], the US’s biggest retailer, have a distinct advantage and its share price has benefitted.
Stock markets have rallied in recent weeks, as news of how companies are coping with COVID-19 filters through to investors, who subsequently regain some confidence in parts of the market. While Walmart reported muted holiday figures in its last earnings report, the retail industry stalwart, which is due to report results on 19 May, could well make a comeback from previous earnings cycles. So, could Walmart see a post-earnings share price spike?
While Walmart’s share price is currently down after its mid-April spike — when it hit a year-to-date high of $131.75 — it is still up 5.9% in the year-to-date (through 15 May), outstripping the S&P 500 and the Dow. This should provide some comfort for its share price investors, as the company is well-positioned for a bounce back from its previous quarter earnings haul.
Walmart invests in e-commerce future
Its most recent set of results, announced in February, revealed weak sales figures in the run-up to Christmas as sales of computer games, toys and clothing were unexpectedly subdued.
Still, overall sales were up 1.9% year-on-year, compared with a 3.2% rise a quarter earlier. A year ago, that measure was up 4.2%. Last quarter, total revenue also rose 2.1%.
These numbers caused concern at the time, as Walmart is typically seen as a bellwether, and has historically coped better than most of its peers with economic frustration. Operating alongside Target [TGT] and Amazon [AMZN], this is a marketplace with stiff competition.
However, one marker that suggests Walmart’s star is rising is the fact that, rather than orchestrating widespread layoffs like many businesses, it is ramping up hiring. In March, the company said it was looking for 150,000 new staff to deal with demand. These are mostly warehouse, front of house and delivery workers on temporary or contract roles.
Number of new staff Walmart wanted to hire to keep up with demand
It has also increased wages for employees at its distribution centres and stores by $2 per hour. These announcements have been made as the US’s unemployment rate has surged to more than 14% — a level not reached since the Great Depression.
The company also announced a new service it is calling “Express Delivery,” in efforts to expand its reach during the pandemic and retain new customers once lockdowns are lifted.
“We know our customers’ lives have changed during this pandemic, and so has the way they shop,” said Janey Whiteside, chief customer officer. “We also know when we come out of this, customers will be busier than ever, and sometimes that will call for needing supplies in a hurry. COVID-19 has prompted us to launch Express Delivery even faster so that we’re here for our customers today and in the future.”
“COVID-19 has prompted us to launch Express Delivery even faster so that we’re here for our customers today and in the future” - Janey Whiteside, chief customer officer
Despite the fact this won’t be logged in its most recent earnings, Walmart stands to gain long-term from this kind of investment, if the resulting earnings could justify the setup costs.
In previous quarters, the retail conglomerate’s investments in e-commerce have weighed on its margins, as it has rolled out membership programmes, acquired e-commerce brands and expanded the number of click-and-collect and delivery locations served. In 2019, its e-commerce business lost over $2bn, according to the Wall Street Journal.
Walmart’s earnings outlook
One metric to keep an eye on in Walmart’s upcoming results is any increase in sales growth.
As consumer habits change due to the coronavirus, this will be an important measure of how it is faring against Amazon and an interesting yardstick since its disappointing holiday sales results. Investors should note how delivery is performing, and whether this investment has been offset by demand for new services.
When the economy is struggling, consumers typically turn to companies that can offer cost-effective solutions, so theoretically Walmart, a traditionally low-cost retailer, could see a share price rise as chaos ensues elsewhere.
|PE ratio (TTM)||24.38|
|Quarterly Revenue Growth (YoY)||2.10%|
Walmart share price vitals, Yahoo Finance, 18 May 2020
Analysts polled by CNN Money have said they expect to see earnings of $1.13 per share on sales of $131.3bn. The current consensus among 33 polled analysts is to buy stock in Walmart, with a median share price target of $134.
Zacks Equity Research says its analysts expect Walmart to post earnings of $1.15 per share, representing year-on-year growth of 1.8%. Meanwhile, the firm's latest consensus estimate is calling for revenue of $129.24bn, up 4.3% from the same quarter last year.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.