Tuesday, May 19, 2020

Will Walmart be Able to Challenge Amazon?

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What’s happening: Walmart is scheduled to report its first-quarter results before the opening bell on Tuesday, May 19.

What happened: While retailers of nonessentials have been forced to close their operations during the coronavirus pandemic, Walmart and Amazon have seen a rise in sales due to their strong infrastructure network.

Investors are very optimistic ahead of the quarterly results from Walmart, as the retailer has been a lifeline for customers amid the shelter-in-place orders. Walmart is expected to have grabbed market share from smaller grocery outlets that were faced with severe supply chain issues and other retailers who were unable to continue due to lockdown orders.

At a time when analysts are busy reducing their estimates for various companies, they have made upward revisions to their revenue expectations for the big-box retailer. While Walmart continues to face stiff competition from Amazon, one of its initiatives is expected to change the game for the Bentonville, Arkansas-based company.

Expectations for the quarter: The world’s largest retailer is expected to report sales growth, while profits are likely to have taken a hit.

  • Walmart’s revenue is expected to grow 5.4% to $130.58 billion.
  • The estimate for earnings stands at $1.09 per share, representing a 3.5% decline from the same quarter last year.

Why it matters: With customers stockpiling amid stay-at-home orders to prevent the virus from spreading, Walmart witnessed a sharp rise in the sales of grocery, personal care items and alcoholic beverages.

The company’s earnings, however, are under pressure from higher expenses associated with keeping shelves stocked despite supply chain disruptions. Costs have also risen due to keeping store employees, delivery personnel and customers safe from the virus. Walmart has also allocated $350 million in special cash bonuses for rewarding employees for their contribution during the crisis. The impact of the bonus payments will be felt in the second quarter, as the disbursement began in April.

Walmart has invested heavily into setting up its home delivery logistics over the past six months, before the pandemic struck. This has helped the company remain in the game even during the crisis. This facility is expected to continue to help Walmart generate strong results going ahead. Having the network to deliver essential goods and other products directly to its customers has helped Walmart compete with Amazon. Walmart has a strategic advantage in delivery, with plans to deliver products directly to restaurants, garages, etc.

How the shares have performed so far: Shares of Walmart have mostly been immune to the coronavirus crisis, gaining around 7% over the past three months. Amazon’s shares, on the other hand, rose 12% in the same period. Heading into the first-quarter results, Walmart’s stock rose 1.4% during the regular trading session yesterday.

What to watch: With Walmart making an entry into ecommerce and Amazon forging into the grocery space, investors expect stiff competition between these two retailing giants. Investors will also be expecting further details from the company regarding the impact of the bonus payments to employees. Markets are eager to know whether management issues any outlook for the coming period.

The Markets Today

     

The euro will be in focus today, after the currency pushed higher against its major rival in the previous session.

Context: The euro rose versus the US dollar on Monday following news of Germany and France planning a recovery fund of €500 billion ($545.65 billion) for the eurozone.

Details: Encouraging results from coronavirus vaccine trials by Moderna boosted investor sentiment and pushed the euro higher initially in the session. The biotech firm expects the next stage of the trial to be completed by July.

The euro was further lifted by news of a Franco-German deal seeking to distribute €500 billion to EU countries most affected by the pandemic.

“When Germany and France take the initiative, then this encourages the opinion-making process in the EU,” German Chancellor Angela Merkel said. She added, “We will have to act European in order to get well out of this crisis.”

The EUR/USD pair traded at its highest levels in around two weeks and made gains of almost 1% to trade at 1.0919 on Monday.

What to watch: Investors await a basket of economic reports from the Eurozone, including new car registrations, construction output and the ZEW indicator of economic sentiment. Eurozone construction output fell 0.9% in February, while the ZEW indicator rose 74.7 points to 25.2 in April

Investors also continue to assess covid-19 numbers, with total cases exceeding 4.8 million globally. Britain has confirmed more than 247,700 coronavirus cases, while there are over 231,600 cases in Spain.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 up by 3.85%, 3.15% and 2.44%, respectively.

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What else to watch today

     

UK’s claimant count change, employment change, unemployment rate and labour productivity, Indonesia’s interest rate decision, Italy’s construction output, Spain’s balance of trade, Germany’s Zew economic sentiment index, South Africa’s mining production, gold production and manufacturing production, Russia’s GDP growth as well as the US Redbook index, building permits, housing starts and API crude oil stock change.