Earnings preview: What to expect from Walmart in Q1

Walmart Inc. (NYSE: WMT) is set to report first quarter 2020 earnings results on Thursday, May 16, before the opening bell. Revenues are estimated to increase 2% to $125.2 billion while earnings are forecasted to decline over 10% to $1.02 per share. Walmart has consistently beat earnings expectations over the past four quarters.

Walmart’s ecommerce business is doing well, helped by higher online grocery pickup, increased average tickets and a broader assortment on the website. The strength of this business is likely to drive top line growth for the first quarter.

The retail giant has been investing heavily in its business to remodel stores and improve its delivery services as part of its efforts to provide better customer experience and drive growth. It has made acquisitions and entered into several partnerships as part of these efforts. These investments are providing meaningful returns and this is expected to benefit the company.

The momentum of the ecommerce business and the successful investments being made are expected to drive comparable sales growth for the quarter.

Walmart faces stiff competition from Amazon (NYSE: AMZN) and the two companies are constantly implementing new strategies to gain an edge over each other. The latest of Walmart’s strategies is the rollout of free next-day shipping. Although analysts expect this will lead to increased costs, the company’s vast network of stores are likely to provide an advantage.

Walmart’s investment in Indian company Flipkart has been facing some choppy waters due to competition from Amazon as well as new regulations that have been implemented in the country. The Flipkart investment is likely to weigh on profits in the first quarter.

In the fourth quarter of 2019, Walmart beat earnings estimates as adjusted EPS grew 6% to $1.41. Revenues rose nearly 2% to $138.8 billion, with a 4% growth in US comparable sales. US ecommerce sales increased 42% year-over-year.

For fiscal year 2020, Walmart expects consolidated net sales to grow at least 3% in constant currency.  US comp sales, excluding fuel, are expected to grow 2.5% to 3% while US ecommerce sales are expected to increase 35%. Walmart US grocery aims to have about 3,100 grocery pickup locations and 1,600 delivery locations by fiscal year-end.

Walmart’s shares have gained 9% so far this year. Looking at the past one year, the stock has climbed 20%. Walmart has an average target price of $109.

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