Analyzing Walmart’s 1Q16 Earnings Outlook

1Q16 Preview: Walmart Looks at Higher Growth and Headwinds

(Continued from Prior Part)

Walmart : Earnings estimates and company guidance

As noted earlier in this series, Walmart (WMT) will declare its 1Q16 earnings on May 19. According to company guidance, earnings per share (or EPS) would come in between $0.95–$1.10 in 1Q16. The company earned $1.10 EPS in 1Q15.

Consensus Wall Street analyst estimates expect the retailer (XRT) (RTH) (XLY) to report adjusted earnings per share (or EPS) of ~$1.05, a decline of 4.8% over 1Q15. That said, the company has come ahead of earnings estimates in its last two quarters, and five of the last eight quarters.

For fiscal 2016, the company expects EPS to come in between $4.70–$5.05. Consensus Wall Street estimates expect adjusted EPS to come in at $5.26. In fiscal 2015, the company earned an adjusted EPS of $4.99.

Peers Target (TGT), Costco (COST), and Kroger (KR) will report quarterly earnings on May 20, May 27, and June 18, respectively. TGT, COST, and WMT together constitute 2.9% of the portfolio holdings in the SPDR S&P Retail ETF (XRT) and 2.1% of the holdings in the iShares S&P 100 ETF (OEF).

Key drivers

Walmart’s earnings outlook is expected to be affected by both internal and external factors. Walmart (WMT) announced several investments in its business lately, including e-commerce, higher wages for ~500,000 hourly workers, an d international growth investments. Consequently, Walmart expects these factors to impact its earnings this year.

Higher wage costs are expected to hit Walmart’s fiscal 2016 earnings by about $1 billion, or $0.20 per share. E-commerce investments would impact EPS by about $0.06–$0.09 per share in incremental e-commerce investments amounting to $1.2 billion–$1.5 billion.

As discussed in Part 3, Walmart also expects the higher US dollar to impact fiscal 2016 revenue by ~$10 billion and operating income by $0.10 per share, “if currency exchange rates stay where they are,” according to Charles Holley, CFO of Walmart.

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Browse this series on Market Realist:

• Part 1 - E-Commerce Should Spark Walmart’s Fiscal 1Q16 Performance

• Part 2 - Analyzing Spending Trends for Walmart and Its Peers

• Part 3 - Walmart Looks at a Bigger International Presence