Wal-Mart surprised the market with an earnings miss, as adjusted per-share earnings came in at $1.33, below the $1.37 consensus of analysts polled by FactSet. The miss overshadowed a revenue beat. Wal-Mart reported strong holiday sales Tuesday, but said online sales growth slowed during the quarter. The retail giant reported same-store-sales (SSS) rose 2.6% in the latest quarter, the 14th consecutive quarter of growth. Ecommerce growth grew 24% during the quarter, down from over 50% the previous three quarters. The slowdown was largely expected as its sales from Jet contributed less to growth given the anniversary of the acquisition from a year ago. But as holiday goods like TVs and toys flooded ecommerce warehouses, those products squeezed room for everyday items, leading to some out-of-stocks online, hurting online sales, Chief Executive Doug Mr. McMillon said on the call. “Our in-stock for basic items suffered as a result.” The company is now expecting e-commerce growth of about 40% for 2018. Growth is expected to climb to that level through the year as discussed on the conference call with analysts and investors.

Chief Financial Officer Brett Biggs said consolidated gross profit margin fell 61 basis points, with two-thirds of that decline attributed to price investments in certain markets and the mix effect from the e-commerce business. The remaining third stemmed from inventory markdowns at its wholesale operation Sam’s Club, related to closing 63 Sam’s Club locations in the U.S. as part of an overhaul of that business segment and the cost of winding down its Brazil first-party e-commerce business.

“Looking ahead to fiscal 2019, we’ll continue to make investments that will pressure the rate some, but not to the extent of this quarter,” said Biggs.

Moreover, Wal-Mart is cutting marketing spending at Jet.com to focus on acquiring new customers for its larger website, Walmart.com. Sales will temporarily slow, said Mr. McMillon as the site continues to focus on higher-income, urban shoppers.  Wal-Mart said the closure of 63 Sam’s Clubs during the quarter, discontinuing other real-estate projects and other activities related to the new tax code reduced the earnings per share figure by $0.60. The company also said the new U.S. tax law added to earnings by $207 million in its latest quarter. Shares of WMT got hammered yesterday on the heels of reporting Q4 2017 results, with the retailing giant notching its worst dollar decline in it’s publicly traded history. In light of Wal-Mart’s results, most retail stocks came under pressure yesterday.

Wal-Mart results disappointed many investors and may still have further to fall in the coming months.  Investors might look forward to analysts price target revisions as the company’s rich valuation comes into question.  Home Depot, on the other hand, had results that beat on both the top and bottom line. The home-improvement chain reported net income of $1.78 billion, or $1.52 a share. The impact of the new tax law and one-time bonuses to hourly employees negatively impacted fourth-quarter earnings per share by 17 cents. On an adjusted basis, Home Depot earned $1.69 a share, which is more than the $1.61 a share expected. Revenue rose 7.5% to $23.9 billion, more than the $23.7 billion analysts polled by Thomson Reuters had expected. Comparable sales rose 7.5%, while analysts had expected 6.5 percent growth. Home Depot guided to sales growth of 6.5% in 2018 and comparable store sales growth of 5 percent. The retailer also announced a 16% increase in its dividend, thanks to the tax cuts. On a call with analysts, Home Depot executives were bullish on the economic backdrop. It’s not just rising demand for homes that’s buoying sales, they said, but also surging home price appreciation, which allows Americans to tap equity for repairs and upgrades.

“We’re looking at housing continue to be a tailwind for us,” CEO Craig Menear told analysts.

As it pertains to the retail and restaurant sectors, Thomson Reuters has recently updated their forecast for earnings and sales, as follows:

4Q 2017 Thomson Reuters Retail and Restaurant Aggregate Estimates and Revisions 

  • Q4 earnings are expected to increase 7.9% from Q4 2016.
  • 48% of companies in our Retail/Restaurant Index have reported 4Q 2017 EPS.
  • Of the 105 companies in the Retail/Restaurant Index that have reported earnings to date for Q4 2017, 79% have reported earnings above analyst expectations, 8% matched, while 13% reported revenue below analyst expectations.
  • The Q4 2017 blended revenue growth estimate is 7.5%.
  • 72% have reported revenue above analyst expectations, and 28% reported revenue below analyst expectations.
  • For Q1 2018, there have been 13 negative EPS preannouncements issued compared to 7 positive EPS preannouncements.

Next week, a host of retailers will be reporting their respective Q4 2017 results including Macy’s, J.C. Penney, Kohl’s and Target.


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