Walmart feeling the pinch

Walmart Stores will announce its third-quarter figures on Thursday 13 November, and traders are expecting a dip in earnings. 

Walmart logo on building
Source: Bloomberg

Walmart’s stock price has made a full recovery since the company cut its annual sales forecast in October, but there are concerns which still hang over the retailer. The previous forecast for yearly sales growth was between 3-5%, which was lowered to 2-3%. A decline in consumer spending and a strong US dollar was blamed for the lowered guidance. To offset the tougher trading conditions the firm is lowering next year’s capital expenditure to a range of $11.6-$12.9 billion that is $1.4 billion lower from the initial forecast. One of the biggest problems that Walmart is facing is little-to-no wage growth for the low-to-middle income earners in the US.

The introduction of new health care coverage in the US has caught the retailer off guard as more employees are signing up for it than originally predicted. Healthcare costs for WalMart will be $500 million more than last year.

The largest retailer in the US is starting to change its model. The company plans to open fewer supercenters and concentrate on e-commerce. In the second quarter, online sales were up 24% on-the-year, but it still missed the guidance of a 30% increase. To improve its online presence, Walmart will make a major investment in this field. The company predicts tough price competition and high shipping costs in the coming quarters, and while ultimately the move will pay off, it could put a dent in profits in the short-term.  

Equity analysts are bullish on the stock. Out of the 37 ratings, 15 are buys, 18 are holds and four are sells, with the average target price of $78.19 which is below the current price. This could suggest that analysts are only bullish when the price is relatively low.

Walmart will reveal its full-year figures in February of next year and analysts are expecting revenue of $486.9 billion and earnings per share of $5.01. This is another reduction in its full outlook could send the stock tumbling. Dealers are expecting third-quarter revenue of $118.39 billion and EPS of $1.12. In comparison, last year’s third-quarter revenue and EPS were $114.9 billion and $1.14 respectively.

A poor set up of numbers could push the share price to the 200-day moving average of $76, and if that level is breeched then the October low of $72.62 would be in target. To the upside, $80 is the immediate target and then traders will be looking to the all-time high of $81.34.

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