Hard hats or party hats? Walmart earnings could shake up the retail sector

Walmart (NYSE:WMT) heads into its earnings report on August 15 with expectations running high following a 29% year-to-date rally. The consensus estimates from analysts are for Walmart (WMT) to report revenue of $167.3 billion, EPS of $0.65, and U.S. comparable sales growth of 3.3%. The general view is that Walmart (WMT) will continue to benefit as a defensive stock pick if the jittery trading in the global markets continues, but the retail sector as a whole is on watch to hear the Bentonville retail giant’s pulse on the U.S. consumer.

Morgan Stanley expects another mega quarter for Walmart (WMT) as it shows off its market share leadership against a weaker consumer backdrop. Analyst Simeon Gutman thinks if Walmart (WMT) matches comparable sales estimates, and it will be acceptable for the stock, especially as the rest of retail has slowed. “Given slow July retail data, the risks of a consumer slowdown rising and an upcoming election in 2H’24, we think retaining guidance should be acceptable with these uncertainties,” he highlighted.

Oppenheimer analyst Rupesh Parikh is slightly more cautious about the Walmart (WMT) print. Parikh and his have a more muted view toward the setup following the recent significant outperformance and given potentially aggressive Q3 Street top-line forecasts. “At this juncture, amidst the current muted inflation backdrop, we believe management could raise FY24 (Jan. 2025) EPS guidance, but maintain implied full-year top-line constant currency (cc) growth at the high end or slightly above the 3-4% range,” noted Parikh. The Oppenheimer view is that investors should be positioned to take advantage of any profit-taking should it materialize, instead of playing for a positive catalyst on the upcoming print. Walmart (WMT) is still a top pick at Oppenheimer.

On Seeking Alpha, analyst Uttam Dey thinks an increased mix of higher-margin digital ad revenue and membership growth should boost Walmart’s (WMT) margin profile. Dey believes Walmart (WMT) can deliver a 9.6% CAGR in operating income growth, with margins expanding by about 20 basis points per year on average. However, with expectations clearly running high and the market potentially factoring in a Walmart (WMT) beat-and-raise guidance, Dey thinks it is possible the stock stays range bound for a few months if Walmart’s (WMT) guidance is conservative.

During the earnings conference call, investors should expect to hear Walmart (WMT) discuss margin headwinds for the balance of the year, and details on the U.S. sales mix from general merchandise to grocery and health and wellness. Investors will also be listening to hear if Walmart (WM) was able to match its strong global advertising business growth of over 30% in Q1.

Options trading implies a share price of 5% after Walmart (WMT) posts its Q2 earnings report. Notably, the stock saw a rally of 7% after its Q1 report was dropped. The retailers with the highest trading correlation to Walmart (WMT) following its earnings report are BJ’s Wholesale Club (BJ), Costco (COST), Ollie’s Bargain Outlet Holdings (OLLI) and Best Buy (BBY). Analysts also have grocery store stocks Albertsons Companies (ACI), Kroger (K), and Sprouts Farmers Market (SFM) circled as three names that could react to the Walmart (WMT) print. The ETFs with the highest degree of exposure to Walmart (WMT) include the Consumer Staples Select Sector SPDR Fund ETF (XLP), the Vanguard Consumer Staples Index Fund ETF (VDC), the VanEck Retail ETF (RTH), and the iShares U.S. Consumer Focused ETF (IEDI).