Stock of the week - Walmart (19.08.2021)

Among a number of the US retailers that reported Q2 earnings this week, investors were offered a report from Walmart (WMT.US), one of the largest retailers in the world. A discount department store chain with over $500 billion in annual sales is also a good representation of the US consumer and its habits. Let's take a closer look at the recent earnings report from Walmart.

Q2 earnings overview

Walmart reported a calendar Q2 2021 revenue at $141.05 billion, above $137.17 billion expected by the market. Comparable sales growth reached 5.2%, showing continued slowdown following last year's pandemic boom. However, analysts expected growth to reach just 3.3%. E-commerce sales experienced the sharpest slowdown. Q2 e-commerce sales growth reach just 6% YoY, down from 37% YoY in Q1 2021 and 69% YoY in Q4 2020. Net income dropped from $6.58 billion in Q2 2020 to $4.28 billion in Q2 2021. Adjusted EPS reached $1.87 (exp. $1.57.

Average ticket drops, shopping frequency increases

More detailed data provided by the company showed that the average ticket dropped 0.8% YoY from a year ago and an increase in sales was driven by a 6.1% increase in comparable transactions. Company derives more than 80% of its sales from the United States and data shows that US customers are no longer as afraid of pandemics as they were and, in turn, shop more often. Outside the United States, Walmart experienced a 15.2% drop in net sales in Q2 2021, to $23 billion. Walmart has managed to lower its overall debt-to-capitalization ratio by 4.4 percentage points, to 36.5%. Receivables increased 19.4% YoY and inventories were 16.2% YoY higher, reflecting increased demand and strong sales growth.

Full-year forecast boost

While sales growth slowed, the fact that it remains positive after very strong calendar 2020 is a good development. Walmart decided to boost its full-year forecasts following release of Q2 earnings. Company expects full-year comparable sales growth of 5-6%. Operating income is expected to increase 11-13.5%, up from previous guidance of "high single-digit growth". EPS is expected to reach $6.20-6.35.

While the forecast was upgraded and earnings turned out to be better than expected, stock failed to move higher following the release. Shares finished Tuesday (release day) flat and moved lower during Wednesday's market sell-off. From a technical point of view, stock is pulling back and a failed attempt of breaking above the resistance zone at $153.00, marked with all-time highs from November 2020. In case pullback continues, the first major support zone to watch can be found in the $143.00 area, where the lower limit of the Overbalance structure can be found as well as previous price reactions. Dropping below this area would, at least in theory, signal a short-term trend reversal and potential for deeper declines.

Source: xStation5