Sturdy E-commerce & Comps to Fuel Walmart’s (WMT) Q3 Earnings

Walmart Inc. WMT is slated to release third-quarter fiscal 2019 results on Nov 15. We expect this retail behemoth to gain from robust efforts to boost e-commerce and delivery services. It also boasts a solid comparable store sales (comps) record and an impressive international business. However, we are cautious about the company’s interest burden stemming from the recently acquired stake in Flipkart as well as strained margins.

We note that Walmart’s bottom line surpassed estimates in three of the trailing four quarters, the average beat being 2.3%. Let’s see what’s in store for the company this time around.

Strong E-Commerce & Delivery Services

Walmart is trying every means to evolve with the changing consumer environment and compete with brick-and-mortar rivals along with e-Commerce king Amazon AMZN. In this regard, the company is resorting to several e-commerce initiatives such as buyouts, alliances as well as improved delivery and payment systems. To this end, the company’s partnerships with Microsoft MSFT and Rakuten as well as the buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth and are noteworthy. Further, the Walmart2World money transfer service along with its Walmart Pay mobile payment system highlights the company’s focus on accelerating online business and making shopping convenient. Recently, the company unveiled plans to collaborate with PayPal PYPL. Apart from easy money transfer, the deal is expected to aid Walmart add more customers

Apart from this, the company is making aggressive efforts to expand in the booming online grocery space, which was a major contributor to e-commerce sales in the second quarter. This is evident from the company’s deals with Postmates and DoorDash as well as the acquisition of last-mile delivery service Parcel. Walmart recently raised stakes in Dada-JD Daojia to 10% to strengthen last-mile delivery service and enhance omni-channel offering.

Such robust endeavors enabled the company’s U.S. e-commerce sales to soar 40% in the second quarter of fiscal 2019 compared with 33% rise recorded in the first quarter. Improved assortments and grocery pickups were the main drivers. Going ahead, management aims to achieve 40% U.S. e-commerce sales growth in fiscal 2019.

Robust International Business & Comps

Along with boosting online sales, Walmart is committed toward augmenting brick-and-mortar business. The company is on track with store remodeling to upgrade them with advanced in-store and digital innovations. Walmart is also gaining from compelling pricing strategy, which helps it attract customers. Owing to such upsides, U.S. comps (excluding fuel) rose 4.5% during the second quarter, driven by more than 2% improvement in traffic and ticket. Moreover, e-commerce sales had a positive impact on quarterly comp sales in Walmart U.S. by 100 basis points (bps). Notably, this marked the retailer’s 16th consecutive quarter of positive U.S. comps growth.

We note that the Zacks Consensus Estimate for third-quarter U.S. comps growth (excluding fuel) is pegged at an increase of 2.9% compared with a rise of 2.7% in the year-ago quarter.

We also expect Walmart to gain from initiatives to improve international business. To this end, the company is making consistent efforts to shift focus from underperforming areas to profitable regions like India and China. Walmart recently acquired 77% stake in India’s leading e-commerce entity, Flipkart.

Walmart Inc. Price, Consensus and EPS Surprise

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