Wal-Mart stores hopes to keep rallying
Wal-Mart Stores, long the bane of the rest of the retail sector, is strangely becoming its champion. At least on one front.
If brick-and-mortar has a chance of showing that it can survive – and even thrive – in the era of Amazon.com, it's Wal-Mart. The big-box retailer continues to expand its online presence and go toe-to-toe with Amazon's many tactics and promotions. Thus, each earnings report is increasingly not just a status check on the company, but a window into just how effective its e-commerce efforts are.
Wal Mart's first-quarter earnings announcement for fiscal 2018 – due out Thursday morning – will be no different, and that bodes well for WMT stock.
The headline numbers. If Wall Street has it right, Wal-Mart isn't exactly looking at a scintillating quarter. Analysts expect a mere 1.6 percent bump higher in revenues, to $117.8 billion, on a small profit decline of about 2 percent to 96 cents per share.
It's hard to put lipstick on that pig, but it's worth noting that the expected earnings decline is thinner than in any of the previous four first quarters. Also, estimates for a slight uptick in revenues is more credit than the Street gave WMT ahead of the fiscal 2017 first quarter, which followed Wal-Mart's first full-year revenue decline since at least 1980.
And Deutsche Bank is at least a little more optimistic than the consensus, expecting Wal-Mart to beat its earnings mark by a penny. It also expects same-store sales of 1.6 percent (above Street views of 1.3 percent).
Wal-Mart isn't fixed, but it is fixing things.
Online is everything. While WMT stock might jump or tumble on an earnings beat or lousy guidance, the area to watch this quarter is online sales, which now flows through the fingers of Jet.com founder Marc Lore.
Wal-Mart snapped up Amazon competitor Jet.com for $3.3 billion in August 2016. That gave WMT access not just to Jet's monthly tally of 400,000 new shoppers and its 2,400 retail and brand partners, but also Lore himself – then CEO of Jet.com, and now head of Wal-Mart's e-commerce efforts in the U.S.
That relationship appears to be paying dividends already, as Wal-Mart's fourth-quarter earnings report from February showed a surge in online sales of 29 percent domestically and 15.5 percent globally. Even the top of the earnings press release – usually reserved for headline numbers or the occasional gain in comps – featured e-commerce prominently, boasting of its 36.1 percent jump in U.S. gross merchandise volume. That's thanks in large part to Lore, who has grown the number of items on sale at Wal-Mart's website from 8 million in 2016 to 35 million now.
When Deutsche Bank raised Wal-Mart's price target to $81 last week, analyst Paul Trussell cited Jet.com for its increased bullishness, saying, "We think Jet.com has the potential to help position WMT as a legitimate contender versus AMZN in the long term."
The Jet buyout set off a string of e-commerce merger and acquisition activity by Wal-Mart. Since Lore was brought on board, WMT also has purchased online outdoor retailer Moosejaw and online footwear and accessories retailer Shoebuy (via Jet), and is working toward acquiring menswear-focused Bonobos. Wal-Mart made perhaps its most outside-the-box acquisition in March when it bought Modcloth, which Mashable described as "noteworthy, since ModCloth is known for its alternative, indie vibe and size-inclusive philosophy – kind of the opposite of Wal-Mart."
Wal-Mart also is taking direct shots at Amazon, such as killing off its Amazon Prime competitor, ShippingPass, to instead implement free two-day shipping on more than 2 million items to any customers – something Amazon only partially matched a few weeks later when it lowered the minimum order price for free standard (up to a week) shipping to non-Prime members.
WMT even filed a patent for a competitor to Amazon's single-button ordering device, Dash. "While Dash buttons still require users to press a physical button separate from the product, Wal-Mart aims to integrate [Internet of Things] into the products themselves for automatic re-ordering with no user input at all," data provider CB Insights says in a blog post.
Pacific Crest's Edward Yruma went so far as to mention Wal-Mart as a reason for downgrading Amazon back in April, saying, "We believe that Wal-Mart's aggressive stance in e-commerce makes it a much more formidable competitor."
Yes, there are other cogs spinning at Wal-Mart, such as an increased focus on grocery and squeezing competitors on price – strategies that Telsey Advisory Group called out in their upgrade of WMT in early April.
But the most important development to watch at Wal-Mart in Thursday's report and beyond is online, hands down.
More Earnings in Focus
While Target suffered from numerous headlines in 2016, including the "bathroom boycott" and several revenue declines, TGT shares still managed to finish the year flat. That's not good, but it's far better than the 23 percent drop Target has posted so far this year, heavily driven by its fourth-quarter report in February that saw the company miss on both the top and bottom lines. Expectations are low for the first quarter of 2017, due out before Wednesday's bell. Analysts are calling for a 30 percent drop in earnings to 91 cents per share, on a 3.5 percent dip in revenues to $15.6 billion. A bearish call last week by Gordon Haskett Research Advisors didn't help; the firm sees significant challenges from Amazon, Wal-Mart and "structural issues impacting the apparel arena."
Salesforce's 2017 couldn't look any different than Target's, with the customer relationship management specialist charging 30 percent higher in orderly fashion. CRM has been a growth machine, doubling revenues since 2014 and tripling its cash flow over the same period. Analysts are expecting more of the same when Salesforce announces its first-quarter results for fiscal 2018 on Thursday after the bell. Wall Street believes CRM will report 8 percent earnings growth to 26 cents per share, but more impressively, 22.5 percent top-line growth to $2.35 billion. Credit Suisse's Michael Nemeroff slapped a high price target of $110 on the stock back in April, representing 30 percent upside from then and still 24 percent upside from current prices around $89.
This Week's Earnings Calendar
Tuesday. Dick's Sporting Goods (DKS), Home Depot (HD), Jack in the Box (JACK), Manchester United PLC (MANU), Red Robin Gourmet Burgers (RRGB), Sina Corp. (SINA), Staples (SPLS), Stratasys (SSYS), Urban Outfitters (URBN)