Here’s The 1 Key Number Walmart Must Get Right During Its Q3 Report

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* Reports Thursday, November 15, before the market open
* Revenue Expectation: $124.83B
* EPS: $1.02

With US consumer confidence buoyant and unemployment at or near all-time lows, most Americans have more money to spend. That should make it easy for Walmart Inc. (NYSE:WMT), the world’s largest retailer, to report healthy growth during its Q3 2018 earnings call that will impress investors.

Indeed, investors are expecting nothing less than a blow-out quarter when the big-box retailer reports on Thursday, November 15, before the market opens. In the previous quarter, Walmart reported its strongest sales gains in more than a decade, driven by its grocery business.

Comparable sales at US Walmart stores rose 4.5% in the three months ended in July, more than double analyst estimates. During its last report, the world’s biggest retailer also boosted its full-year forecasts for comparable sales and adjusted profit.

Walmart is expected to report earnings of $1.02 per share, according to FactSet, up a penny from last year, on sales of $125.4 billion. The retailer has beaten earnings expectations for 11 of the last 12 quarters.

Online Sales Are Key

Without doubt however, the number that’s key to the ongoing momentum in its share price, which closed last night just under $103, is growth in Walmart’s online sales. This measure is crucial to prove the success of the company’s continuing battle with the e-commerce behemoth, Amazon.com (NASDAQ:AMZN).

In our view, there is a clear evidence that Walmart’s massive investments to improve its digital platform are paying off. In the second quarter, US online sales continued their upward trajectory, surging 40% from the same period a year ago, putting Walmart’s full-year guidance for its online sales growth within reach.

The success of its hybrid retail model—in which its massive store network and online presence come together to create a superior shopping experience for customers—shows that the retailer can survive in the fast changing retail environment in which customers are cutting trips to stores and relying on e-commerce instead.

Here's The 1 Key Number Walmart Must Get Right During Its Q3 Report

WMT Weekly 2015-2018

The ongoing success of Walmart’s online strategy, as well as its strong in-store traffic, don’t justify the underperformance of its shares when compared to other retailers this year, such as such as Target (NYSE:NYSE:TGT) and Costco (NASDAQ:COST). Both stocks are up about 25%, compared to Walmart’s gain of only 5% during the same period.

In our view, investors are too hung up on the cost pressures the company because of its aggressive investments in order to improve online infrastructure. In fact, it makes sense for long-term investors to ignore these concerns as long as Walmart is showing revenue growth and winning additional online customers.

Bottom Line

Irrespective of its quarterly financial performance, Walmart is a terrific defensive stock to own during market downturns and economic uncertainty. Its shares have surged 15% during the past three months even as the S&P 500 dropped about 6%. That’s clear evidence that the retailer provides a good hedge for buy-and-hold investors.

Walmart’s 4,700-plus US locations, more than $500 billion in annual sales, and its potential for global growth, offer scale and an economic moat that most of its competitors will find hard to match.

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