uploads/2015/08/Part-101.jpg

Target and Walmart at Opposite Ends of Earnings Guidance

By

Updated

Walmart’s (WMT) updated guidance for fiscal 2016

In its 2Q16 earnings release, Walmart provided the investor community with revised projections for fiscal 2016. The company is now expecting diluted EPS (earnings per share) of $4.40–$4.70, down from its earlier guidance of $4.70–$5.05. This implies a fall of 6.9%–12.9% over comparable EPS in fiscal 2015.

In 3Q16, Walmart expects to generate EPS of $0.93–$1.05. That’s a projected fall of 6.2%–16.7% over 3Q15.

Article continues below advertisement

Walmart’s cost projections

As we already saw in this series, wage increases for staff and persistent currency headwinds are expected to continue to be a drag on earnings. Walmart’s pharmacy business is also expected to continue feeling margins pressure due to industrywide factors.

According to Charles Holley, Walmart’s CFO (chief financial officer), Walmart now expects a higher impact on the wage cost front, estimated at $0.24 per share for the full year, up from its earlier projection of $0.20 per share. This is due to higher than planned associate hours in the front-end and in stocking positions, primarily to improve shrinkage and improve customer satisfaction.

Pharmacy business and currency headwinds are expected to impact EPS (earnings per share) by $0.11 and $0.15 per share, respectively, in fiscal 2016. According to Holley, Walmart has revised its currency impact upward by $0.02 per share.

Target’s raised guidance

In contrast, Target (TGT) has raised its full-year guidance. Adjusted EPS is expected to be $4.60–$4.75 in fiscal 2016, an implied growth rate of 8.9%–12.5% compared to fiscal 2015. Target’s updated guidance reflects benefits from favorable product mix and a favorable comparison with last year, which saw heightened promotional activity impacting margins.

Article continues below advertisement

Outlook

Despite the poor results in the quarter, Walmart hasn’t let up on its growth investments. While Walmart’s US business appears to have come out of its low or no growth phase, international operations have dragged down the company (XRT). But the company’s geographical diversification is what ultimately sets it apart from peers like Dollar General (DG) and Dollar Tree (DLTR). It will also give Walmart the scale to take on its no-frills and global competitors.

Target has put its Canada foray behind and is looking to make the most of the booming US economic situation. Target’s overseas growth experiment hasn’t worked out. We’ll have to wait and see if Walmart can localize enough outside of the Americas and the United Kingdom to make a more significant impact on future earnings.

For more sector updates and analyses, visit our Consumer and Retail page.

Advertisement

More From Market Realist