Walmart reported Q4 non-GAAP EPS of $1.33 (GAAP $0.73), missing consensus est. of $1.37 if more than $1.22 a year ago, largely thanks to the company's plunging tax rate (Q4 at 21.6%, down 9.2%) on revenue of $136.3BN, also above the est. of $134.83BN, and up 4.1% from the $130.9BN a year earlier (the number includes $1.12BN from membership and other income, down 5.8% y/y). For the full fiscal year 2018, total revenue was $500.3 billion, an increase of $14.5 billion, or 3.0%.
More disappointing was Walmart's Q4 gross profit, which declined 61bps to 24.1%, even as the company's effective tax rate tumbled 917bps to 20.3%. Furthermore, gross merchandise volume (a measure of all the goods it sells online) rose 24% in 4Q vs 54% in 3Q;
Also disappointing was Walmart slower Q4 eCommerce sales, which rose only 23% in Q4, down from an average of 50% in the last three quarters. Walmart has been aggressively investing in its eCommerce business to catch up with Amazon, and the efforts had generally paid off until the current slowdown, even if online shopping still makes up only about 4% of the company’s nearly $500bn in annual sales. Looking ahead, the company hopes that eCommerce sales growth will revert back to "approximately 40%."
But the biggest disappointment to investors is that despite reporting stronger than expected US comp sales of 2.6%, beating expectations of 2.0%, Walmart guided full year 2019 EPS of $4.75-$5.00, well below the consensus estimate of $5.13.
Some more details on the fourth quarter ended Jan 31:
- Walmart U.S. comps. ex-fuel up 2.6%, est. up 2.0%; forecast up 1.5%-2.0%
- Wal-Mart U.S. traffic up 1.6% y/y, avg ticket up 1.0%
- Wal-Mart U.S. E-commerce sales up 23% y/y, GMV up 24%
- Sam’s Club comps. ex-fuel up 2.4%, est. up 1.9% (CM, avg of 19); co. saw up 1.5%-2%
- Sam’s Club traffic up 4.3%, avg ticket down -1.9%
Commenting on the results, WMT CEO Doug McMillon said that "we have good momentum in the business with solid sales growth across Walmart U.S., Sam's Club and International. We're making real progress putting our unique assets to work to serve customers in all the ways they want to shop, and I want to thank our associates for their great work this past year. We're making decisions to position the business for success and investing to win with customers and shareholders."
But what investors were far more focused on was Walmart's poor guidance, which as noted above, saw full year adj. EPS $4.75-$5.00 (reflects effective tax rate 24%-26%, excluding benefit of ~5c from currency), versus a Wall Street est. of $5.13. The company also sees FY19 Walmart US comp. sales growth ex-fuel of at least 2%, Sam’s Club (ex-fuel & tobacco) up 3%-4%.
Other guidance details:
- Expect to slightly leverage expenses on a consolidated basis
- Consolidated operating margin (% of sales): approximately 4.3% - 4.4% in constant currency
- Capital expenditures: approximately $11.0 billion
- Effective tax rate: between 24% and 26%
Walmart also sees year net sales growth in constant currency of 1.5%-2.0%, hurt by:
- Sam’s Club closures, decision to remove tobacco from certain clubs
- Decision to wind down first-party eCommerce business in Brazil, divestiture of Suburbia
Another major red flag was that Walmart uncharacteristically did not provide 1Q comp. sales targets.
In light of the poor guidance, despite the sharp tax rate drop, the market was not happy, and send WMT stock over 6% lower in premarket trading.
Finally, the WMT weakness has spilled over into Target, which is also indicated lower at after Walmart forecast year adjusted EPS below estimates and did not provide 1Q comp. sales targets. Also, in another hit to Target, AMZN earlier announced that Amazon Rewards Visa Cardmembers will now get 5% back on all Amazon.com purchases (equal to TGT’s REDCard reward), 2% back at restaurants, gas stations and drugstores, and 1% back on all other purchases.