Market Overview

17 February 2021

Walmart Is in the Mirror of the U.S. Retail Sector

The stocks of Walmart Inc, which is the biggest retail corporation in North America, are nervously awaiting for tomorrow's Q4 earnings report. Its revenue and equity per share (EPS) figures are scheduled to be released before the Wall Street's open on Thursday, February 18, as well as the CEO's letter containing the forward guidance on the company's business plan and prospects for the rest of the year. Walmart operates a chain of budget hypermarkets, discount department and grocery stores with a very simple motto “Save Money, Live Better”. This famous network for everyday, low price shopping is headquartered in Arkansas and it will celebrate its 60th anniversary in 2022.

Walmart overcame a pandemic year without shocks, reaching average quarterly sales of $136.2 billion from April to September. This, for example, is almost 9% better than the average quarterly revenue of $125 billion for the whole year of 2017, including the Christmas season, and almost 4% higher than the average quarterly figure of $131 billion in 2019, also including with Christmas sales. Among the marketing tools that the Walmart chain successfully used for this achievement are a customer’s choice between free shipping on $35+ orders or picking up their order from the store in order to receive a pickup discount, plus a customer's service package including a special Walmart's Credit Card.

It’s no wonder that Walmart shares are trading above $145 on the day before the fresh earnings report is released, compared with last year's pre-virus peaks near $120 and with a price of just about $100 per share at the end of the mentioned 2017. Therefore, the main formal intrigue of the report is exactly how much the new sales figures would exceed the record number, so far, of $141.67 billion in Q4 2019. Average expectations of experts polled by Reuters are now $147.98 billion of revenue for Q4 2020, but that is not the ultimate dream, and who knows if Walmart is able to offer even more tasty cherries on its cake.

Various representatives of the U.S. retail sector are generally well at home on a pandemic horseback, although without any specific feats during last autumn months. A well-known exception is MACY's chain, which is a clear rival of Walmart, but MACY's has started to experience problems with demand and sales, being pushed to reduce its shopping floor space long before 2020, so its shares have been in a downtrend for five year in a row since 2016. MACY's shares began to beat faster only for a short period of time, at the very end of January, as a part of Reddit's fueled trader's flash mob, but MACY's shares are trading one third cheaper when compared to its temporary peak levels of January.

At the same time, a more suitable roadmap for Walmart may be represented by another discount retail chain named Target, which is popular in the U.S. and Canada. Target Corporation is going to report on March 2, and it is trading at $190 per share, and it even reached a high of almost $200 per share in mid-January, compared with its former peak of about $130 during Christmas 2019. This performance confirms the state of being essential for the well-structured budget stores with a cheap average check, especially taking into account the hard problems with actual unemployment levels in the United States, including people who are betting more on benefit growth and are not actively looking for urgent jobs. That means, they do not visit the unemployment exchange or the labour registry office, and therefore, many of them even are not included in the official percentage of unemployment. The number of such people are estimated to be up to 4 million people in the United States, which easily explains the discrepancies in the U.S. official statistics on the number of jobs created or payrolls, which paradoxically decrease simultaneously with the alleged decrease in the formal percentage of unemployment. Cheap shopping of a vast range of products are critical at least for those marginal groups of the population.

As for the broader society base, a good example of retail success is shown, for example, by the financial results of Nike and McDonald's. Over the past twelve months, Nike stocks rose steadily from around the $100 per share area to $145 plus a few cents now, due to increased demand for running and other outdoor sports equipment during lockdowns, and Nike shares only briefly dipped in the last week of January to $130, but quickly surged back up. As for the Ronald McDonald's House, its sales for the fourth quarter were almost as impressive as in the third quarter of 2020, but the new round of upward movement has not yet gained momentum. Of course, it may happen because the number of drive-through windows could no longer remain a decisive advantage compared to many other restaurant chains in the near future, as the pandemic recedes. But such kinds of considerations, that too many advantages have already been factored into current prices, may also keep Walmart shares from immediately updating the tops in its uptrend, unless the reaction to tomorrow's report is clearly mega-positive from the very first hours. 

And Walmart shares' specific response to its own Q4 report may also depend on all of those sectoral considerations. Therefore, it may not be generally influenced by pure fundamental and financial indicators from tomorrow's report and the CEO's letter, as they would almost certainly be strong on the solid base for this economy segment during the lockdown season and the Christmas holidays. But the final reaction before the end of the week may become at least a litmus test paper for the future strength and the technical readiness of the retail giant's assets to grow principally, after they tried to fall to $139 per share at February 1 and then made a clear "reverse pass up" signal through the previously broken support of $142 to $145 and higher. Traders usually tend to interpret such kinds of "reverse pass up" signals as an additional confirmation of the imminent continuation of the rally. So, the Q4 report fundamental reaction test for that strong technical signal is now critical.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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