Will Walmart's Holiday Quarter Bolster Its E-Commerce Growth?

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Last year was a topsy-turvy one for Walmart (NYSE: WMT) investors. The stock climbed to all-time highs early in 2018 due to excitement about the company's growing e-commerce sales. That enthusiasm gave way to reality when its more than 50% year-over-year growth fell to 23% in the final quarter of 2017 (reported in late February of last year), putting investors on notice that it would take longer to build Walmart's budding digital empire. The stock has since climbed out of that hole and is back near its record highs, as shareholders were relieved that the company's 40% year-over-year online sales goals seemed achievable.

Walmart is scheduled to report its fiscal 2019 fourth-quarter financial results before the market opens on Tuesday, Feb. 19. Let's recap the company's showing last quarter and see if it provides any insight into what investors can expect when the company reports earnings.

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Improved comps and growing pains

Walmart reported mixed results for the third quarter. The company generated sales of $124.9 billion, an increase of 1.4% year over year, and up 2.4% in constant currency. This fell short of analysts' consensus estimates of $125.45 billion. Profits fared better, with adjusted earnings per share of $1.08 up 8% compared to the prior-year quarter, beating expectations.

The best news came from comparable-store sales, which improved 3.4% year over year in Walmart's U.S. markets, resulting from 2.2% ticket growth and a 1.2% increase in foot traffic. Sam's Club produced even better comps, up 5.7%. Digital sales at Walmart in the U.S. climbed 43% year over year, while Sam's Club online sales jumped 32%.

This was the first quarter that included Walmart's recent acquisition of India's e-commerce giant Flipkart. Walmart isn't breaking out those results, but reporting them as part of its international sales segment. The company said the 44 days of results from Flipkart hit gross margins by 42 basis points, as it "drove significant operating income dilution in line with expectations."

What the quarter might hold

A recent report indicates that Walmart's same-day grocery delivery ambitions may have hit a snag. Deliv, one of the company's earliest delivery partners has cut ties with the project, saying its drivers were waiting as much as 40 minutes to pick up orders from Walmart stores. The project is still ongoing; Walmart is still working with seven other delivery companies, and same-day service is still available from 800 of the company's 5,000 stores in the U.S. It's likely this will be discussed on Walmart's conference call.

Walmart doesn't provide a quarterly forecast, but revised its full-year guidance in the wake of its third-quarter results. The company is now expecting comparable-store sales in the U.S. of "at least" 3% compared to its previous expectations of "about" 3%. That may seem like semantics, but remember we're dealing with billions of dollars here. This outlook is also notably up from the 2% comparable-store sales growth the company forecast for the U.S. market this time last year.

Additionally, Walmart reduced its full-year earnings-per-share guidance to a range of $2.26 to $2.36, down from its previous expectations of $2.65 to $2.80. Much of the decrease is related to Flipkart.

To put that into the perspective of Wall Street sentiment for Walmart -- and while we don't want to fall victim to its short-term mindset -- analysts' consensus estimates are calling for revenue of $138.66 billion, which would represent an increase of 1.7% year over year if achieved. Analysts are also expecting adjusted earnings per share of $1.33, which would be flat compared to the year-ago quarter.

While all of the numbers will be scrutinized, all eyes will likely be focused on two of Walmart's most carefully watched metrics -- comp sales and e-commerce sales -- which reflect the current reality and give insight into the company's future.

We'll know more when Walmart reports earnings before the market opens on Tuesday, Feb. 19.

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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.