Walmart Q3 FY2022 Earnings Report Preview: What to Look For

Walmart Inc. (WMT) posted the strongest earnings and revenue growth in recent years during 2020 amid the COVID-19 pandemic, and the company has continued to post strong profit gains in the first two quarters of this year. This has come as government stimulus checks and rising worker wages have spurred a rebound in U.S. retail sales. Now, many experts say that supply chain disruptions and higher inflation threaten to slow the rebound in retail sales during the crucial holiday shopping season. That would have a major negative impact on Walmart, one of the nation's largest retailers by revenue.

Investors will be focusing on Walmart's most recent financial performance, and the company's outlook for the holiday season, when it reports earnings on Nov. 16, 2021 for Q3 FY 2022. Walmart's 2021 fiscal year (FY) ended Jan. 31, 2021. The company now is in its 2022 fiscal year. Analysts expect both adjusted earnings per share (EPS) and revenue to rise, but at slower rates than in recent quarters.

Investors will also be focusing on Walmart's U.S. comparable sales growth, excluding fuel. This metric measures the rate of growth generated by the company's existing stores and clubs in the U.S., including e-commerce sales. Analysts expect comparable sales to rise YOY, with growth accelerating from the pace set in recent quarters but flat compared to the year-ago quarter.

Shares of Walmart have underperformed the broader market over the past year. Walmart shares drifted downward from the middle of November 2020 to early March 2021. During that period, its underperformance compared to the S&P 500 widened dramatically. Though Walmart shares rebounded between early March and mid-April 2021, the shares continued to lag by a significant amount through November 2021. As a result, the company's shares have provided a total return of just 1.2% over the last year, well below the S&P 500's total return of 32.4%.

Walmart Earnings History

Walmart reported Q2 FY 2022 earnings and revenue that beat analysts' expectations. Adjusted EPS rose 13.9% compared to the year-ago quarter, a sharp deceleration from the previous quarter's rapid pace of growth. Revenue grew 2.4% year over year (YOY), just slightly slower than in the previous quarter. Walmart said that its revenues were negatively impacted by approximately $8.9 billion related to divestitures. The company also grew its grocery market share.

In Q1 FY 2022, Walmart's earnings and revenue surpassed analysts' consensus estimates. Adjusted EPS increased 42.7% compared to the year-ago quarter, its fastest pace in at least the past 15 quarters. Revenue rose 2.7% YOY, its slowest pace of growth since the final quarter of FY 2020. Walmart noted that government stimulus had an impact on its financial results for the quarter.

Analysts expect both earnings and revenue growth to slow in Q3 FY 2022. Adjusted EPS is expected to rise 3.7% YOY, its slowest pace since the final quarter of FY 2021. Revenue is forecast to grow just 0.8%, its slowest pace in at least 17 quarters. For full-year FY 2022, adjusted EPS is expected to increase 15.5%, which would be the fastest pace in at least the past five years. Annual revenue is expected to grow 1.1%, which would be its slowest pace in at least the past five years.

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be watching another key metric, Walmart's U.S. comparable sales growth. Comparable sales, also referred to as same-store sales in the retail industry, measures the sales performance of the company's stores and clubs that have been open during the previous 12 months. The metric includes sales from Walmart's remodels, relocations, expansions, and conversions, as well as e-commerce sales. Comparable sales growth gauges a company's ability to generate additional revenue from established stores. If the bulk of a company's sales are being generated by established stores as opposed to new ones, this is a good sign that the company's products have not yet saturated the local market.

Walmart's U.S. comparable sales growth, excluding fuel, accelerated last year during the pandemic. In the two years prior to the pandemic—FY 2019 and FY 2020—YOY quarterly growth rates for U.S. comparable sales ranged between approximately 2%-5%. In the first quarter of FY 2021, growth accelerated to 10.3% YOY before slowing slightly to 9.9% YOY in Q2 and again to 7.1% in Q3. But those rates of growth were all faster than in any quarter during the previous two years. Growth accelerated to 8.8% in Q4 FY 2021. Growth has, however, slowed so far in FY 2022. U.S. comparable sales growth decelerated to a pace of 6.2% YOY in Q1 and again to 5.5% YOY in Q2. Analysts are expecting a re-acceleration in Q3 FY 2022, estimating YOY growth of nearly 7.1%.