Will the ongoing Flipkart probe hurt earnings and the Walmart share price?

The Walmart [WMT] share price had gained 15.6% in the past 12-months to 13 August, when it closed at $149.53. Will the retail giant’s second quarter of the fiscal year 2022 results, due to be released before markets open on 17 August, push the Walmart share price higher?

A slowdown in March saw the Walmart share price fall 11.5% since the start of the year to $126.04 on 4 March, but a partial recovery over the next month saw the stock close 6 April at $139.04, only 2.4% down in the year to date. The Walmart share price remained at roughly this level until June, when it slipped in the first half of the month to close 18 June at $134.67, 5.5% down in the year to date.

The Walmart share price has been on an extended run of gains during the two months since. The Walmart share price closed 5 August at $144.96, up year-to-date by 1.7% for the first time since 17 February. As of 13 August, the Walmart share price is up 4.9% in the year-to-date.

Post-earnings bounce for the Walmart share price?

Zacks Equity Research analysts forecast sales of $136bn for Walmart’s upcoming second-quarter results, with the consensus estimate among CNN Money analysts a shade higher at $136.9bn. If accurate, the Zacks sales estimate would mark a 1.27% year-over-year drop in sales and would indicate sales have fallen 1.01% since the previous quarter.

Analysts polled by Zacks expect earnings per share of $1.56, while CNN Money’s consensus estimate again comes in fractionally higher at $1.57. The Zacks figure was unchanged from the equivalent figure from the same quarter in 2020 and 7.7% below the $1.69 reported last quarter.

CNN Money’s sales estimates range from $129.9bn to $144.9bn, leaving much more room for variance than the Zacks estimates range, which has a high sales estimate of $138.59bn and a low estimate of $133.44bn. Similarly, Zacks earnings estimates range from $1.50 to $1.65, while CNN Money’s range from $1.50 to $1.73.

Walmart investors will hope for a repeat of last quarter’s positive surprise, which saw the Walmart share price rise 2.2% when announced on 18 May.

Walmart’s Flipkart faces India antitrust case

However, Walmart is facing an antitrust probe in India thanks to its Flipkart platform, which dampened investor sentiment. Trading group Delhi Vyapar Mahasangh accuses Flipkart of the promotion of select sellers, exclusive mobile phone launches and deep discounting practices, which it claims have driven out the competition.

Walmart acquired a 77% stake in Flipkart for $16bn in 2018, becoming the majority shareholder alongside previous investors, including Tencent [TCEHY], Tiger Global and Microsoft [MSFT]. The acquisition was made with the specific aim of rivalling Amazon [AMZN] in India for a market expected to be worth $200bn by 2026, according to European Supermarket Magazine.

Amazon is also in the probe’s crosshairs, with the Competition Commission of India (CCI) asserting that the e-commerce giant engaged in the same anti-competitive behaviour as Flipkart. Both companies challenged the investigation’s basis in lower courts and India’s Supreme Court, but the challenges were overturned.

“We expect organisations like Amazon and Flipkart… to volunteer for inquiry and transparency,” Nuthalapati Ramana, chief justice of India, told the court, reported European Supermarket Magazine. Both companies issued statements pledging to cooperate with the investigation and stating that they comply with all Indian laws.

The probe’s announcement hasn’t had a major impact on the Walmart share price, however, which rose 0.2% on 9 August as the news broke.

Walmart share price outpaces retail sector

Walmart’s struggles don’t seem to be reflected across the retail industry. The VanEck Vectors Retail ETF [RTH] has gained 12.3% in the past 12-months (through 13 August), underperforming the Walmart share price over this period. The retail-focused ETF has, however, underperformed the broader market, with the S&P 500 gaining 13.4% in the same 12-month period.

As of 31 July, Walmart is the fund’s third-largest holding, accounting for 8.31% of its net assets. Amazon tops the list, however, with a 19.5% weighting. With Amazon’s share price suffering stark losses in recent weeks, it is possible that the e-commerce giant’s woes are dragging on the fund’s performance.

However, other funds holding Walmart aren’t struggling as much. The Fidelity MSCI Consumer Staples Index ETF [FSTA] had outperformed the VanEck Vectors Retail ETF in the past 12-months when it gained 17.8%. The fund has also outperformed the Walmart share price and the broader market in the same 12-month period. As of 30 July, Walmart’s share price is the fund’s fourth-largest holding with an 8.32% weighting.