Digital And Strategic Restructuring Will Be The Focus Of Walmart Q4 2016 Earnings

  • Walmart will report its Q4 2016 earnings next week (Feb 18).
  • Walmart restructures its business with a lower small stores portion in the mix of total stores worldwide.
  • F/X headwinds will impact results as well as a shift in consumers’ excess cash.

The retail behemoth Walmart (NYSE:WMT) will report its fourth quarter earnings and fiscal year 2016 results next week on 18th Feb, following the strategic change the company announced last month. The company decided to close the Walmart Express business with its 102 stores in the U.S., downsize its operation in Puerto Rico, and restructure its business in Brazil while also closing 60 underperforming stores in the South American country.

The goal of the move is to take a small step backwards in Walmart expansion and shift the company’s focus back to what it does best – mega supermarkets. This move comes one month after Walmart introduced its e-payment solution, Walmart Pay, which allows customers to checkout using the Walmart app and embraces the benefits an e-payment option will bring to the customers and the company.

These changes show a two-layer development. In the first layer, Walmart re-focuses its core business, and in the second layer, Walmart invests further in an e-payment solution as one of Walmart’s growth catalysts. In the future, Walmart Pay could drive the company’s revenues up: not as a result of charging service fees but as a result of improving the checkout process and making it more time-efficient so more customers could complete their shopping in Walmart stores, thus increasing in-store traffic and payments.

Adopting Walmart Pay is the first step in Walmart's e-payment strategy as the company is also leading the retail consortium behind the CurrentC e-payment initiative. CurrentC is an Apple Pay/Android Pay/Samsung Pay equivalent that uses an NFC-based solution founded by a consortium of mega retailers like Exxon Mobil (NYSE:XOM), CVS Health (NYSE:CVS), Royal Dutch Shell -A (NYSE:RDS.A), Wendy’s, and many more that will use this service as their internal e-payment solution. CurrentC is currently in small beta, but it is expected to expand nationwide this year.

CurrentC's progress, alongside the launch of Walmart Pay and the constant growth in e-commerce, enhances Walmart’s digital relationship with its customers, which is one of the key points in the company’s strategy. For many market participants, Walmart is the online retailer of tomorrow, and these steps support what the market wants to see in Walmart. In the previous quarter’s earnings release, Walmart reported better results than expected and issued guidance above the market consensus that triggered a rally in Walmart stock price. The current uncertainty in the market fuels the rally further as it drives investors to defensive stocks, and Walmart is one of the investors’ darlings.

WMT stock chart

Source: Walmart Stock Price Data by amigobulls.com

Going into the upcoming earnings release, investors should pay close attention to any comment about the company’s progress on the digital front: e-payment initiatives, e-commerce, and any back-end technology improvements. Besides the digital efforts, international growth should be in focus after the recent fluctuations in the foreign currency market that are expected to impact the company’s financials.

Moreover, the latest year-over-year sales decline in international sales and the vast restructuring that Walmart has executed in Latin America draw a lot of attention to this segment that accounts for 25% of the company’s revenues. Commodities prices also fluctuate considerably, and as the oil prices continue to plunge, the widely accepted theory is that the free cash that consumers have now after spending fewer dollars on oil will be shifted towards consumption. It will be fascinating to see how this trend will impact Walmart’s 2017 fiscal year guidance.

These are the comparable figures to watch in Wal-Mart Q4 2016 earnings:

Q4 2016 Consensus Q4 2015 Actual 2017 Guidance consensus 2016 Consensus 2015  Actual
Revenue $130.73B $131.56B $492.15B $484.03B $485.65B
EPS $1.46 $1.54 $4.17 $4.681 $5.07

Source: Thomson Reuters

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