Walmart Chops EPS Estimates, Guides 2020 Higher

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In the sort of news that investors never want to hear, Walmart Inc. (NYSE: WMT) announced this morning that it is cutting is fiscal year (FY) 2019 earnings per share (EPS) guidance from a previous range of $2.90 to $3.05 to a new range of $2.65 to $2.80. Adjusted EPS guidance has also been trimmed from a prior range of $4.90 to $5.05 to a new range of $4.65 to $4.80.

The 25-cent haircut on EPS is attributed to dilution following the $16 billion acquisition of a majority stake in India’s Flipkart. The company also said the FY 2020 EPS, excluding the effect of the Flipkart acquisition, would decline by a “low single digit percentage compared with FY19 adjusted EPS.” Including Flipkart, adjusted EPS is forecast to increase by a low- to mid-single-digit percentage compared with FY19.

The company noted that GAAP EPS is also expected to increase in FY20, but it did not provide an estimate for the increase. Walmart’s fiscal year begins in February and ends the following January.

Walmart CEO Doug McMillon commented:

We’re adapting and transforming with speed to better serve our existing customers and reach new ones. We’re operating with discipline, balancing our short and long-term opportunities. While we’re excited about what we’ve done so far, we aren’t satisfied. As we execute today and build for tomorrow, our associates and unique omni-channel assets position us for success.

Brett Biggs, the retailer’s chief financial officer, added:

We are leveraging our scale, assets and financial strength in ways unique to Walmart to enhance and build competitive advantages. We continue to operate with discipline, we’re strengthening our cost culture and we’re leveraging technology, data and analytics in new ways to be more productive. Our financial strength gives us the flexibility to deliver near-term results while making strategic decisions for the longer term.

Walmart reiterated its sales-growth estimate of about 2% for FY19 and provided the first look at FY20 guidance. Sales growth in 2020 is expected to rise by at least 3% in constant currency, including a negative effect of 1% related to the sale of its Brazilian operations and its planned reduction in tobacco sales at the company’s Sam’s Club stores.

E-commerce sales growth for FY19 has been lowered from a prior forecast of about 40% to 35%.

Comparable U.S. store sales are forecast to rise by 2.5% to 3.0% in FY20, excluding fuel sales. Sam’s Club comparable sales are forecast to rise by 1% excluding fuel and 3% excluding fuel and tobacco products.

Net international sales growth is forecast to rise by around 5% in FY20, including the positive effect of the Flipkart acquisition and the negative effect of the Brazilian sale.

The company expects to open fewer than 10 new U.S. stores in FY20 and more than 300 new stores internationally, primarily in Mexico and China. Capital expenditures for the year are forecast at $11 billion, with a focus on store remodeling, customer initiatives, e-commerce, technology and supply chain.

In Tuesday’s premarket session, Walmart stock traded down about 1.5% to $92.45, after closing at $93.82 on Monday. The stock’s 52-week trading range is $81.78 to $109.98, and the 12-month price target is $105.10.