Walmart Earnings: Will Ecommerce Growth Meet Analyst's High Expectations?

Big box retailer Walmart Inc. WMT reports third-quarter earnings for fiscal 2019 before market open on Thursday, Nov. 15. Shares are down slightly in pre-market trading after yesterday’s 1.6 percent decline. Even with those drops, the stock isn’t too far from its all-time high of $109.88.

For Q3, WMT is expected to report adjusted EPS of $1.01 on revenue of $125.45 billion, according to third-party consensus analyst estimates. In the same quarter last year, adjusted EPS came in at $1.00 on revenue of $123.18 billion in revenue. 

Management did just cut their outlook for the current fiscal year because of the Flipkart acquisition. Their fiscal 2019 guidance for adjusted EPS is now $4.65 to $4.80, down from $4.90 to $5.05. However, some analyst were optimistic about the company’s fiscal 2020 outlook: U.S. sales growth of 3 percent or greater and U.S. comp sales growth between 2.5 to 3 percent, above the 2.4 percent analyst consensus expectations.

One of the biggest areas that analysts and investors have been eyeing is WMT’s ecommerce operations. In Q2 its ecommerce sales increased 40 percent year over year, accelerating from the 33 percent pace that WMT reported in Q1. Most analysts are expecting ecommerce growth of around 35 to 40 percent this quarter, and for the next fiscal year analyst consensus calls for ecommerce growth of 35 percent. Those sales include ship-to-store, pick-up-in-store and grocery-pick-up orders.

To expand its ecommerce operations, WMT has been investing heavily, something that has weighed on short-term results. In the past few years the string of deals that have been announced included Jet.com ($3 billion), Bonobos ($310 million), Cornershop ($225 million), Eloquii ($100 million), and more. Some have been ecommerce/logistics related companies, while many of the others have been online clothing companies and brands. 

The biggest deal of them all has been Indian ecommerce company Flipkart, which WMT acquired a 77 percent stake for $16 billion. Today WMT announced that Flipkart CEO Binny Bansal would resign immediately following an investigation of personal misconduct. Given the size of this acquisition relative to the others, and the latest news regarding management, the Flipkart acquisition is likely to be a focus on Thursday’s earnings call. 

Walmart Climbing Back. WMT dropped rapidly at the start of the year and then traded sideways from the beginning of March until its last earnings report, when shares soared 9.3 percent in one day. Since mid-October, WMT has climbed steadily higher, although it has yet to retest its all-time high of $109.98 it hit in January. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Walmart Options Activity

Around the upcoming earnings release, options traders have priced in a 5 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim^® platform. Implied volatility was at the 56th percentile as of this morning. 

In short-term trading at the Nov. 16 monthly expiration, calls have been active at the 105 and 106 strike prices. There’s also a sizable amount of open interest at the 100-strike call (26,982 contracts open at the end of yesterday’s session.) Volume has been lighter on the put side, with the 100 and 104 strikes seeing more activity the past few days. 

At the next several weekly expirations there hasn’t been much activity other than at the Nov. 23 weekly expiration. In recent trading, both the 109-strike call and the 100-strike call have had higher volumes relative to the rest of the strikes at that expiration. 

Looking to the next monthly expiration on Dec. 21, most of the call trading has been right around the money, with the 100 and 105 strikes being the most traded. Volume has been much lighter on the put side, with a smattering of activity from the 105 strike down to the 95 strike. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.