Walmart Slated To Report Earnings Before Thursday's Open

Walmart Inc. WMT reports Q1 fiscal 2019 earnings before market open on Thursday, May 17, and the company just made its largest acquisition ever ahead of its report.

WMT announced last week it was buying a 77 percent controlling stake in Flipkart, India’s largest online retailer, for $16 billion. The remaining stake will be controlled by co-founder Binny Bansal and other investors including Tencent (TCEHY), Alphabet Inc. GOOG GOOGL and Microsoft Corporation MSFT.

Flipkart’s net sales grew 50 percent year over year to $4.6 billion in its most recent fiscal year that ended in March, according to WMT’s press release on the deal. To put that in perspective, WMT reported that its e-commerce sales grew 44 percent in fiscal 2018, totaling $11.5 billion.

The market didn’t seem to have a positive initial reaction to the deal as WMT opened down almost 4 percent on May 9, the day of the announcement, which noted there would be a negative impact on EPS this year of approximately $0.25 to $0.30 and about $0.60 in fiscal 2020 as a result of operating losses and interest expense.

This isn’t the first deal WMT has made to expand into international markets. In addition to India, management has said it considers China one of its other key growth markets and WMT has increasingly partnered with JD.com (JD), one of China’s largest online retailers, since the two announced a strategic alliance in 2016. WMT upped its stake in JD from 5.9 percent to 12.1 percent in early 2017.

As the company has expanded in some overseas markets, it has exited others. In Q4, WMT exited its e-commerce business in Brazil, and has been steadily shuttering stores in the country.

Excluding the impact of foreign exchange, net sales from Walmart International were up 2.8 percent year over year to $31.9 billion in Q4, while operating income declined 16.9 percent to $1.3 billion.

Earnings and Revenue Estimates

For Q1, WMT is expected to report adjusted EPS of $1.13 on revenue of $120.13 billion, according to third-party consensus estimates. In the same quarter last year, adjusted EPS came in at $1.00 on $117.54 billion in revenue.

WMT previously issued guidance for net sales growth of 1.5 percent to 2 percent in all of fiscal 2019, and EPS of $4.75 to $5.00. Management also said they’re expecting e-commerce growth of 40 percent for the entire year. When the company reported Q4 results, e-commerce growth slowed to 23 percent year over year, down from 50 percent growth in Q3.

TRADING IN A TIGHT RANGE. After its last report in mid-February, WMT gapped down by 10 percent on a weaker-than-expected report with slowing e-commerce sales. Since then, shares have dropped a bit further and, other than the last few days, have been mostly trading in the $85 to $90 range since early March. Chart source: thinkorswim^® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Walmart Options Trading Activity

Around WMT’s upcoming earnings release, the options market has priced in about a 4.8 percent stock price move in either direction according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 59^th percentile as of this morning.

In short-term trading at the May 18 monthly expiration, calls have been active at the 86 and 87 strike prices, while puts have had higher volume ranging from the 82 strike price down to the 80 strike.

At the June 15 monthly expiration, trading has been heavier on the call side and recent activity has been concentrated at the 85, 87.5 and 90 strikes. Trading on the put side has been lighter and spread out across a range of strikes.

Overall during yesterday’s session, trading was heavier on the call side with a put/call ratio of 0.585.

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.

What’s Coming Up

This week brings a string of retail results with reports from Macy’s Inc. M on Wednesday morning and Nordstrom, Inc. JWN after market close on Thursday. Next week, big-box retailer Target Corporation TGT and home improvement retailer Lowe’s Inc. LOW both report before market open on Wednesday, May 23. For a look at what else is going on across markets, check out today’s market update if you have 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.