This Wal-Mart Analyst Will Be Looking For Continued Capital Discipline

Although Wal-Mart Stores, Inc. WMT reported a decline in its adjusted non-GAAP EPS in Q2:17, as compared to Q2:16, the EPS came in ahead of expectations.

Argus’ Christopher Graja maintains a Hold rating on the company.

Q2 Results

Wal-Mart Stores reported its adjusted non-GAAP EPS at $1.07 for Q2:17, as compared to $1.08 in Q2:16; the EPS was ahead of the estimate and the consensus.

Comparable sales in the United States rose 1.6 percent, beating the consensus forecast. E-commerce growth boosted U.S. comps by 40 bps.

Total e-commerce sales grew 11.8 percent in constant currency, while average invested capital fell 1.1 percent.

Related Link: Wal-Mart's Turnaround Story May Be The Real Deal

Capital Discipline Needed

“We were pleased to see that capital stopped growing, and will be looking for continued capital discipline,” Graja mentioned, while adding, “WalMart must significantly improve its return on invested capital to become a multiyear outperformer.”

Wal-Mart ended FY11 with ROIC of 14.6 percent, while ending FY16 with ROIC of 12.5 percent. The S&P 500 has delivered annualized return of 13.3 percent over the past five years, while Wal-Mart has underperformed, with annualized return of 9.5 percent.

“It is hard to be confident of many things on Wall Street, but we are confident that WMT will outperform if it can consistently boost ROIC,” Graja stated, explaining that the company needed to “grow income faster than sales and sales faster than its capital base.”

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