Source: PaxForex Premium Analytics Portal, Fundamental Insight

On Tuesday, August 18, Walmart will announce its earnings report for the second fiscal quarter of 2020. Investors are looking forward to this statement from the retail behemoth as it provides a clear picture of how the industry is adapting to the coronavirus pandemic.

The second quarter of Walmart covers the months of May, June, and July, so it will reflect the long-lasting effect of lockdown orders, plus a likely decline as the economy starts to recover. There are several main questions about how this return to pre-pandemic life will look for Walmart in the future.

Walmart's 10 percent increase in sales in the first quarter resulted in an $11 billion increase in sales in just three months ending May 1. As impressive as this may be, some competitors have shown even greater growth recently. In early June, Kroger reported that sales in comparable stores increased by 19% by the end of May. Sales in dollars skyrocketed 22% in the first fiscal quarter. Costco recently announced that payback in the main US segment increased by 16% in July.

Investors expect more modest revenues from Walmart, with sales trends declining since the first quarter. But there is still a question - has the retailer maintained its position in the struggle for market share with competitors? CFO Brett Biggs said in May that the network must continue to grow, and we will find out if that has happened as the pandemic has evolved during the summer months.
Most equity tracker investors expect earnings this quarter to fall slightly to $1.25 per share compared to $1.27 a year ago. Walmart is benefiting from growing demand for basic consumer goods such as food, but the business is also experiencing huge expense spikes.

COVID-19 associated expenditures were $900 billion last quarter and could be even higher in the second quarter. At the same time, there is a pressure on profitability associated with the shift from personal shopping to contactless delivery, such as home delivery. Not all of these issues affect the operating margin, which was 3.9% of sales last quarter compared to 4% a year earlier.

Baring in mind the uncertainty about economic recovery, unemployment, economic stimulus measures, and the way the virus is spreading, Walmart is unlikely to beat estimates tomorrow. The management will comment on the monthly demand trends, possibly even including the beginning of the third fiscal quarter.

Three months ago, the management was optimistic about the growth, especially given the enthusiasm of consumers, who used the platform to sell through the all-system channel. Walmart was cautious about these encouraging comments about the profitability of the business, which is likely to be tense at least during 2020.

The retail giant will now have a few more weeks of updated demand data as they look forward to an unusual holiday shopping season. Predicting short-term trends, management is likely to try to balance its strong recent sales revenues with the potential for tough economic conditions in the future as this directs investors' expectations for the next few quarters.