Analyzing Walmart’s Q1 Earnings Beat



EPS beat analysts’ estimate

Walmart (WMT) posted better-than-expected fiscal 2020 first-quarter adjusted earnings. Walmart’s adjusted EPS of $1.13 beat analysts’ estimate of $1.02. However, the adjusted EPS fell 0.9% YoY (year-over-year). Walmart has beat analysts’ estimates in the past five quarters.

Continued growth in comparable sales in Walmart’s US segment, a lower adjusted effective tax rate, and a decrease in the outstanding share count supported Walmart’s first-quarter EPS beat. Management stated that the lower adjusted tax rate contributed $0.01 per share to its first-quarter EPS. The favorable product mix and less pressure from transportation costs helped Walmart beat analysts’ estimate.

However, continued investment in price in some of the markets and weak margins in international markets took a toll on Walmart’s bottom-line growth.

Walmart’s consolidated gross margin contracted by 21 basis points to 24.3%, which reflected price investments, the addition of Flipkart, and a negative mix in some of its largest markets. However, improved comparable sales and higher sales of private label products supported the gross margin rate.

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We expect higher comparable sales, productivity savings, and a lower outstanding share count to support Costco (COST) and Target’s (TGT) bottom-line growth. However, price investments, higher digital fulfillment costs, and increased supply chain costs remain a drag on the companies’ margins and EPS.

Management reaffirmed the guidance  

Walmart’s management reaffirmed its fiscal 2020 EPS guidance. The company expects low to mid-single-digit growth in its bottom line. The guidance excludes the impact of the Flipkart acquisition. However, including the dilution from Flipkart, Walmart’s bottom line is expected to mark a low-single-digit decline in fiscal 2020.


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