3 Scenarios For Wal-Mart's Q3 Earnings

Wal-Mart Stores, Inc. (NYSE: WMT) is set to announce its third quarter financial results on November 17.

Barclays projects third quarter EPS of $0.97 versus Street view of $0.96. The brokerage models US comps ex-fuel of +1.3 percent, and EBITDA margin contraction of 40 bp.

Analyst Karen Short laid out three scenarios for shares when Wal-Mart releases its earnings:

• "[U]p (moderate %): US comps ex-fuel accelerate on a stacked basis (above 1.3% consensus) with a y/y EBITDA decline at a LSD percent or better and the 4Q EPS guidance range puts 4Q $1.33 consensus at the midpoint (4Q guidance range of ~$1.25-$1.40)”;
• "[F]lat (reasonable %): US comps ex-fuel moderate slightly on a stacked basis (in line with consensus) but remain above 1% in 3Q with a y/y EBITDA decline at a LSD percent and the 4Q EPS guide brackets $1.33 consensus on the high end (4Q guidance range of ~$1.20-$1.35)”;
• "[D]own (moderate %): a y/y EBITDA decline in excess of a LSD percent (driven by gross margin deterioration), US comps in line with consensus and $1.33 (consensus) is at the high end of 4Q EPS guidance range."

The retail giant’s results would benefit from improved traffic from higher customer scores, new shoppers and additional spending from existing customers. On the other hand, food deflation, competition from discounters and e-commerce will pressure earnings and comps.

Meanwhile, some investors were disappointed by the company's FY 2018 EPS guidance (flat year-over-year), but its outlook was unchanged when exclduing e-commerce spend. However, Short believes slowing unit growth and an increase in remodels will help comps in FY 2018.

But, the analyst says these investments would position Wal-Mart to be a long-term omni-channel winner.

Short has an Overweight rating on Wal-Mart shares, with a price target $82.