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What's in Store for Walmart in Fiscal 2018?

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Part 2
What's in Store for Walmart in Fiscal 2018? PART 2 OF 9

How Walmart Has Been Performing Earnings Estimates

Here’s what keeps boosting Walmart’s results

Wal-Mart Stores (WMT) came up with better-than-expected fiscal 4Q17 earnings (ended January 31, 2017), marking the sixth consecutive quarter wherein the company exceeded analyst earnings expectations on the back of increased traffic and a rise in e-commerce sales.

Walmart’s fiscal 4Q17 adjusted EPS (earnings per share) of $1.30 fell 12.8% YoY (year-over-year) but came ahead of the Wall Street estimate of $1.29. However, the company’s top line missed the consensus estimate. Walmart reported revenue of $130.9 billion for fiscal 4Q17, lagging behind the consensus estimate of $131.2 billion.

How Walmart Has Been Performing Earnings Estimates

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For fiscal 2017, Walmart’s adjusted EPS fell to $4.32 from $4.59 in fiscal 2016, while its top line rose ~0.8% to $485.9 billion.

Walmart’s gross margin expanded 36 basis points in fiscal 2017, driven by increased sales both in store and online. However, its operating profit fell YoY on account of higher expenses related to wage increases and increased investments in technology and e-commerce.

Outlook

Walmart remains upbeat and expects to report strong sales across its stores and e-commerce business. The company plans to streamline its stores and invest in prices to drive top-line results. On a reported basis, its net sales are expected to grow 2%–3% in fiscal 2018.

However, on a constant currency basis, Walmart’s top line is expected to show a rise of 3%–4%. Currency headwinds are expected to impact the top line by $3 billion.

Operating margins

Walmart’s operating margins are expected to decline in fiscal 2018, reflecting increased price investments, commodity deflation, and increased competition from Amazon.com (AMZN). For fiscal 2018, the company’s EPS is expected to be in the range of $4.20–$4.40, as compared to its fiscal 2017 EPS of $4.32. This outlook assumes the negative impact of $0.05 per share due to adverse currency fluctuations. Fiscal 1Q18 EPS is expected to be in the range of $0.90–$1.00, including the negative currency impact of $0.02 per share.

ETF investors looking for exposure to the Consumer Discretionary sector might consider ETFs like the VanEck Vectors Retail ETF (RTH), which invests about 33.1% of the portfolio holdings in Amazon, Walmart, Kroger (KR), and Costco Wholesale (COST).

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