Earnings preview: Walmart to thrive on e-commerce, global expansion in Q2

Supermarket giant Walmart (NYSE: WMT) is scheduled to release results for the second quarter of 2020 Thursday at 7:00 am ET. The general outlook ahead of the announcement is mixed, with analysts predicting a 5% decline in earnings to $1.22 per share on revenues of $130.21 billion, which represents a 1.7% annual increase.

The management’s double-pronged strategy of expanding both store operations and online sales has been successful so far this year, and is expected to fuel top-line growth in the to-be-reported quarter. The recent business deals with the likes of Microsoft (MSFT) and JD.com (JD), as part of taking the e-commerce offerings to the next level, bodes well for the company.  

Currently, the Bentonville, Arkansas-based retail chain is expanding to new geographical regions with growth potential, with the latest such venture being the buyout of India-based e-commerce firm Flipkart. It is widely expected that the international segment will add more than 30 new stores in the second quarter, continuing the momentum seen in the last quarter.

The stable comparable-store sales performance, which increased for nearly five years in a row, will add to revenue growth this time.  The recently-launched free-next-day delivery facility for online purchases has helped the company keep pace with arch-rival Amazon (AMZN) to some extent, in terms of improving customer experience. Competitive pricing, store remodeling initiatives and the attempts at improving the merchandise assortment could act as catalysts.

Also see: How is Walmart doing in online grocery?

Meanwhile, the high costs associated with various expansion initiatives and the mix-effect in the foreign markets can put margins under pressure. Adding to the margin woes are the new pricing strategy and high logistics costs. There are also concerns of China-sourced items turning less profitable due to the deterioration of the government’s trade relationship with China.

Walmart’s revenues moved up modestly in the first quarter on the back of another strong performance by the US segment, which was partially offset by a decline in international sales. At $1.13 per share, adjusted earnings were broadly unchanged from last year. Earnings topped the Street view, while revenues missed.

Related: Wal-Mart Q4 2019 Earnings Conference Call Transcript

Amazon last month reported double-digit growth in revenues to $63.4 billion. As a result, earnings rose 3% to $3.1 billion.

Walmart’s shares made steady gains in recent years, all along hitting new highs and outperforming the industry. They advanced about 15% so far this year, crossing the $100-mark for the first time. In the past twelve months, the stock gained nearly 10%.

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