Factors to Analyze as Walmart (WMT) Readies for Q2 Earnings
Walmart Inc. WMT is likely to report a decline in the bottom line when it reports second-quarter fiscal 2021 numbers on Aug 18, before market open. The Zacks Consensus Estimate has remained stable over the past 30 days at $1.22 per share, suggesting a 3.9% drop from the figure reported in the prior-year period. Notably, Walmart delivered an earnings surprise of 7.3% in the last reported quarter. Further, the world’s largest retailer has a trailing four-quarter earnings surprise of 3.6%, on average.
The Zacks Consensus Estimate for revenues is pegged at almost $134 billion, indicating an increase of 2.8% from the prior-year quarter’s reported figure.
Walmart Inc. Price, Consensus and EPS Surprise
Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote
Key Factors to Note
Walmart has been gaining from burgeoning demand for essential items amid coronavirus. COVID-19 and the resultant social distancing have led consumers to stay indoors and just move out for essentials. This has spiked up the demand for toilet papers, disinfectants, masks, gloves, packaged water, infant supply medicines, groceries and related staples. Further, higher stay-at-home trends have been boosting the company’s e-commerce sales. To this end, the company's delivery service has become all the more vital amid the coronavirus-led social distancing. Incidentally, Walmart unveiled Express Delivery during the first quarter of fiscal 2021, through which many items from its stores can be delivered to customers in less than two hours.
Also, Walmart's Sam’s Club division recently launched a curbside pickup service, which offers contact-less order online and deliver to car service. Certainly, management has been committed to keeping its business going amid the pandemic, as part of which it has undertaken several measures to support its employees and customers. The company has ensured 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, among others. Further, the company expanded its ship-from-store option temporarily to about 2,500 stores and extended curbside pharmacy pickup as well as mail-to-home options in the United States. Apart from this, the company announced a partnership between Uber and Flipkart for the delivery of daily essentials. These factors clearly bode well for Walmart’s top line.
However, high COVID-19 costs, such as higher wages and benefits to employees, costs associated with sanitization and other safety measures, are concerning. Incidentally, the company has been paying special cash bonuses to some of its workers. In its last earnings call, management said that it expects operating income to remain under pressure in the near term. Apart from this, price investments and shift in sales mix to lower-margin channels and categories pose threats to the gross margin, which has been contracting year over year for a while now.
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for Walmart this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Walmart currently has a Zacks Rank #4 (Sell) and an Earnings ESP of -10.29%.
Stocks With Favorable Combinations
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season.
Dollar General DG has an Earnings ESP of +2.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Home Depot HD has an Earnings ESP of +10.19% and a Zacks Rank #2.
Big Lots BIG has an Earnings ESP of +1.66% and a Zacks Rank #3.
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