Why Walmart Earnings, Guidance Failed to Cheer Investors

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Walmart Inc. (NYSE: WMT) reported fourth-quarter and fiscal year 2018 results before markets opened Tuesday. The retailing giant posted quarterly adjusted diluted earnings per share (EPS) of $1.33 on net sales of $135.15 billion, excluding membership fees in Sam’s Club. In the same period a year ago, Walmart reported EPS of $1.30 on sales of $130.94 billion. Fourth-quarter results also compare to consensus estimates for EPS of $1.37 and $134.91 billion in sales.

For the full year, Walmart reported EPS of $4.42 on net sales of $495.76, compared with year-ago EPS of $4.32 and revenues of $485.87 billion. Analysts’ consensus called for EPS of $4.44 and revenues of $498.78 billion.

Sam’s Club membership fees and other income totaled $1.12 billion for the quarter and $4.58 billion for the year.

U.S. fourth-quarter same-store sales rose 2.6% at the company’s supercenter and discount stores and comparable-store traffic rose 1.6%. Same-store sales in the company’s Sam’s Club stores were up 2.8%, excluding fuel, and up 4.0% including fuel sales. Sam’s Club total net sales, including fuel, rose 4.4% for the quarter.

Consolidated operating income fell by 6.9% year over year in the third quarter. U.S. operating income rose by 0.8% for the quarter while the company’s international segment saw a quarterly decline of 2.0%. Operating income at Sam’s Club stores rose by 2.4% in the quarter, excluding fuel, and was up 3.6% including fuel sales.

Walmart reported U.S. e-commerce growth of 23% and gross merchandise value growth totaling 24%.

In Walmart’s international division, sales rose 6.7% but operating income dropped by 10.9%. For the full year, international sales are up 1.7% and operating income was down 7.1%.

Walmart guided full-year 2019 adjusted EPS in a range of $4.75 to $5.00. U.S. same-store sales, excluding fuel sales, are forecast to rise “at least 2.0%,” and Sam’s Club sales are forecast to rise 3% to 4%, excluding tobacco and fuel. Online sales are forecast to rise about 40% in the year, and capital spending is pegged at approximately $11 billion.

Consensus estimates call for full-year EPS of $4.97 and sales of $511.94 billion. For the fiscal first quarter, Walmart is expected to post EPS of $1.14 on sales of $121.09 billion.

Walmart CEO Doug McMillon said:

We have good momentum in the business with solid sales growth across Walmart U.S., Sam’s Club and International. We’re making real progress putting our unique assets to work to serve customers in all the ways they want to shop, and I want to thank our associates for their great work this past year. We’re making decisions to position the business for success and investing to win with customers and shareholders.”

Free cash flow dipped to $18.3 billion in the fiscal year as operating cash flow fell by $3.3 billion. Share buybacks totaled $8.3 billion and dividend payments dipped 1.5% to $6.1 billion. The company raised its annual dividend by four cents to $2.08.

This report is not what investors wanted to hear. Sales are up but profits are down. The consensus EPS forecast is near the top of Walmart’s expected range and 2% growth in sales does not come close to analysts’ expectations. Forecast growth in e-commerce is 10% below the 44% growth posted in fiscal 2018, another warning sign for investors.

Walmart’s shares traded down more than 4% in premarket trading Tuesday, at $100.40, in a 52-week range of $69.33 to $109.98. Shares closed at $104.78 on Friday. The consensus 12-month price target was $108.27 before the results were announced. The high target is $126.00.