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What’s Behind Walmart’s Q4 2019 Earnings Beat?

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EPS exceeded analysts’ estimate

Walmart (WMT) reported stronger-than-expected fiscal 2019 fourth-quarter adjusted EPS. Its adjusted EPS of $1.41 handily surpassed analysts’ estimate of $1.33 and rose 6.0% on a YoY (year-over-year) basis.

Sustained momentum in comparable sales, a lower effective tax rate, and a decline in outstanding shares drove the retailer’s fiscal 2019 fourth-quarter bottom line growth. Its management stated that a lower adjusted effective tax rate had contributed $0.04 per share to its fourth-quarter EPS.

However, continued investment in price, an unfavorable mix driven by growth in e-commerce sales, and higher transportation costs negatively affected Walmart’s bottom line growth.

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Walmart’s gross profit margin contracted 21 basis points to 23.8%, which reflected higher transportation costs, price investments in certain markets, and an unfavorable mix. However, improved comps driven by an increase in ticket size and traffic supported the company’s fourth-quarter gross margins.

We expect both Target (TGT) and Costco (COST) to report weak margins in the near term owing to their investments in growth. However, the bottom lines of these retailers are likely to grow at an impressive rate in the upcoming quarter, reflecting a lower effective tax rate and growth in comps.

Fiscal 2020 EPS guidance

Walmart expects its fiscal 2020 EPS to fall at a low-single-digit rate, reflecting dilution from the acquisition of Flipkart. However, excluding the impact of Flipkart, Walmart’s bottom line is expected to mark low- to mid-single-digit growth. We expect continued growth in comps and cost savings to drive Walmart’s fiscal 2020 EPS.

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