Walmart e-commerce business in spotlight for quarterly earnings

Walmart announced Monday that the company is partnering with Gobble, a meal kit service that requires one pan and 15 minutes to make dinner for 2 people.

The impact of Walmart’s efforts to build out its e-commerce business to challenge Amazon’s dominance will be in the spotlight on Thursday when the retail giant reports second-quarter earnings before the bell.

The Arkansas-based retailer has spent heavily to revamp its digital arm and acquire assets in recent quarters, securing a majority stake in India-based digital outlet Flipkart for $16 billion last May and Jet.com for $3 billion in 2016. Walmart has also expanded its online grocery business and rolled out free two-day shipping to compete with Amazon’s “Prime” service.

The investments have yielded mixed results in recent quarters. Shares have moved in tandem with e-commerce results, sinking as much as 9 percent last February when the growth rate missed expectations. Some analysts have raised concerns that the pricy acquisitions will offset any gains in the key sector.

“We struggle with the path to higher earnings per share as cost pressures and e-commerce investments continue, implying upside needs to come from valuation,” Credit Suisse analysts said in a research note. “While e-commerce investments were initially expected to peak in [fiscal-year 2018], management suggested that losses could worsen again in [fiscal-year 2019] due to additional investments as well as freight.”

Walmart is expected to report earnings per share of $1.22, according to analysts polled by Thomson Reuters. Quarterly revenue is projected to grow about 2 percent to $125.97 billion compared to the same period one year ago.

The company’s e-commerce business grew by 33 percent last quarter, sparking optimism that the investments are paying off. However, executives said they expected the Flipkart investment to shave about 25 to 30 cents off full-year earnings per share in fiscal 2019.

“Clearly Walmart’s several years of e-commerce initiatives are paying off, but likely at the expense of medium-term profits,” J.P. Morgan analysts said. “Walmart’s large market shares (20 percent) and mix (55 percent) in the lower-growth grocery category make the transition more difficult from a financial perspective.”

Walmart shares are down about 8 percent so far this year.