Walmart Earnings Preview: Strong In-Store And Online Sales To Power Stock Higher

* Reports Q3 2020 results on Thursday, Nov. 14, before the open

* Revenue expectation: $128.57 billion

* EPS expectation: $1.09

There are many good reasons Walmart (NYSE:WMT) stock has performed so strongly this year. The mega-store has defied the threat of recession, the lingering trade war with China and the onslaught by online retailers.

When the world’s largest retailer releases its latest quarterly numbers tomorrow, we may see a similar resilience. Walmart now forecasts comparable sales at the higher end of its previous 2.5% to 3% range, while earnings per share could now either increase or decrease slightly this year, compared with an earlier expectation of a low single-digit decline.

In its second-quarter, Walmart reported that comparable sales at its U.S. businesses rose 2.8%, beating analysts’ estimates, helped by a higher average ticket and market share gains in food, wellness items and toys.

If all goes as anticipated, Walmart should be able to post the 20th consecutive quarter of positive traffic at its U.S. stores. Online sales, which are becoming a larger contributor to reported same-store sales growth, should expand at least 30% year-over-year.

Walmart Weekly Price Chart

Trading at $119.12 at Tuesday's close, Walmart shares have risen close to 30% this year and hit a new record high of $120.92 last week.

Two Key Performance Indicators

Investors will be closely monitoring these two performance indicators tomorrow: same-store sales and online expansion. The strength of Walmart’s brick-and-mortar operation and its online expansion demonstrate how successfully the retailer is competing with internet behemoth Amazon.com (NASDAQ:AMZN).

Over multiple previous quarters, Walmart has proven that its huge brick-and-mortar presence gives it an advantage no other online competitor can claim. Powered by online grocery and next-day delivery, web sales in the U.S. rose 37% in the second-quarter—slightly ahead of the company’s expected growth rate for the full year.

During the year, Walmart has also significantly cut spending on new store construction, in favor of growing its internet presence, lowering prices and adding more services in physical stores such as online grocery pickup.

To compete with Amazon’s one-day delivery feature, the retailer has started offering free, nationwide one-day shipping on thousands of household goods. It expects to be able to reach 40% of U.S. households with grocery delivery by the end of this year.

“We’re gaining market share. We’re on track to exceed our original earnings expectations for the year,” Walmart CEO Doug McMillon said in a statement.

Even as its online strategy has succeeded in fueling growth, the ongoing strength in the U.S. economy is also playing a big role in boosting Walmart’s sales outlook. The unemployment rate remains close to a 50-year low, while other economic news point to a U.S. economy that is growing at a stable rate.

Bottom Line

After a remarkable rally this year, Walmart shares may look expensive. That concern, in our view, ignores the fact that this isn’t the same company it was five years ago. With its e-commerce momentum and strong core brick-and-mortar operations, we believe the stock has more room to run. Another strong quarterly performance will justify our bullish view on this retailer.