Investors always look forward to Walmart's (WMT 0.45%) earnings reports due to its unique position as the world's largest retailer. But the company's second-quarter announcement, set for Thursday, Aug. 15, promises to be even more newsworthy than usual.
Walmart has been posting some of its best growth results in a decade and pairing those gains with the profit rebound that shareholders have been waiting for since management began aggressively spending on the e-commerce sales channel two years ago. Yet struggles in a few major international markets, plus spiking tariff rates for Chinese imports, threaten to kill that positive momentum just as the company enters the key holiday shopping sales period.
Let's take a look at what investors can expect to hear from the retailer this week.
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A fifth straight win?
Walmart started fiscal 2020 on strong note by notching its fourth consecutive quarter of over 3% growth in the U.S. market. Investors would love to see that streak extend to five this week, and there are some good reasons to believe that's possible. Walmart's first-quarter growth was powered by a balance between higher customer traffic and increased average spending. Its e-commerce segment saw particular strength, up 37%. Continued strength in these areas could allow the retailer to continue winning back market share from rivals like Kroger.
On the other hand, Walmart faces a difficult comparison with a booming year-ago period that saw sales spike 4.5%. That seasonal factor could drive weaker year-over-year sales growth than investors have seen in a while, but a modest slowdown wouldn't be cause for concern.
Weak points
Shareholders have two big worries heading into this report. The first is Walmart's international segment, which posted unusually weak results last quarter due to economic struggles in places like the U.K. and China. Revenue rose by just 1%, in fact, and another roughly flat result might threaten management's wider 2020 outlook.
Meanwhile, CEO Doug McMillon and his team said back in May that they were preparing for worsening trade tensions between the U.S. and China, but were hopeful that they'd lessen. That optimistic scenario didn't play out, and so Walmart's latest profitability metric, along with its earnings outlook, might show strain from increasing cost pressures across many popular consumer categories. And it's reasonable to expect that, given the choice between protecting margins and maintaining growth, Walmart will choose to defend its market share at the expense of profits.
The outlook
A year ago, Walmart raised its top- and bottom-line outlook as shopping trends firmed up both in stores and online. It's possible investors could see another boost on Thursday if the U.S. business keeps improving while the international segment stabilizes. A downgrade is less likely but could be driven by caution around tariff rates heading into the holiday shopping crush.
In either case, investors will be focused on what CFO Brett Biggs has to say about Walmart's outlook, which currently predicts sales growth of 3% in the U.S. and 5% in the international division, with adjusted earnings rising at about the same rate.
Executives promised an update to those forecasts back in May, and we're likely to see movement one way or the other in the retailer's outlook. There have been many developments around the world that could impact the forecast heading into the final half of Walmart's fiscal year, after all.
