Walmart Hits Record High After Earnings Beat, Despite Soft Guidance, Warning About "Choiceful" Consumers Spending Less
Walmart shares hit a new all-time high after the largest bricks and mortar retailer reported earnings that beat expectations despite providing guidance that was marginally softer, as choosy shoppers nevertheless kept buying in its stores.
Here is what the company report for the final quarter of 2023:
- Adjusted EPS $1.80 (excluding impact, net of tax, from a net gain of $0.23 on equity and other investments) vs. $1.71 y/y, beating estimate of $1.65
- Revenue $173.39 billion, +5.7% y/y, beating estimate $170.66 billion
- Total US comparable sales ex-gas +3.9%, estimate +3.2%
- Walmart-only US stores comparable sales ex-gas +4%, estimate +3.12%
- Sam's Club US comparable sales ex-gas +3.1%, estimate +2.99%
- Change in US E-Commerce sales +17%, beating estimate +15.5%
- Adjusted operating income $7.25 billion, beating estimate $6.79 billion
Of the metrics reported, however, the most important one is that Walmart’s same-store sales (ex fuel), rose 4% YoY for US stores (of which net sales was 3.% and eCommerce added 17%). Wall Street was expecting 3.1% so the number was clearly a beat and was driven by "strength in grocery, health and wellness, offset by softness in general merchandise", and was the result of higher transactions (+4.3%) offsetting average ticket prices, which dropped 0.3% YoY. Still, the number is a far cry from the 8.3% comp sales a year ago.
In keeping with the noted softness in general merchandise, the world’s largest retailer delivered softer guidance for the current fiscal year, as it expects consumers to be selective in their spending:
- For full-year 2025, WMT sees
- Net sales +3% to +4%, slower than growth from the prior year, and adjusted EPS $6.70 to $7.12, slightly disappointing vs the median consensus estimate of $7.09
- Capital expenditures approximately 3.0% to 3.5% of net sales
- For Q1, 2025, WMT sees sees adjusted EPS $1.48 to $1.56.
Discussing the quarter, CEO Doug McMillan said that "we crossed $100 billion in eCommerce sales and drove share gains as our customer experience metrics improved, evenduring our highest volume days leading up to the holidays"
Commenting on customer "selectivity", CFO John Rainey said that “they are being choiceful" as consumers continue to spend less per trip but have been shopping frequently, adding that the company expects some resilience to continue for the rest of the year.
There was more good news: Walmart is gaining share in nearly every category, according to Rainey, with e-commerce among the factors driving growth as the company trims losses associated with handling online orders. Furthermore, while deflation is still a possibility, the company expects it to be less likely based on what it observed during the latest quarter.
That said, while grabbing more spending with low-priced groceries and other basics, Walmart has been cautious in recent months about the health of the consumer amid persistent inflation and higher interest rates. As noted above, US consumers have been buying cheaper products and seeking value, as they pull back from discretionary products like general merchandise. That has resulted in softer sales for some retailers, including Target Corp. and Home Depot Inc. Other big-box retailers are set to report their quarterly earnings in the coming weeks.
As Bloomberg notes, the recent moderation in inflation is another challenge for Walmart and other retail operators that have passed down price increases to consumers over the past few years. This has contributed to higher dollar sales for companies, followed by an uptick in revenue during the pandemic when people bought more groceries and home goods. Such increases are slowing overall, though inflation remains stubborn in some areas like groceries and shelter.
Similar to all of its major competitors, Walmart has been beefing up automation in warehouses and stores in recent years, while remodeling locations to make them more modern. Pickup and delivery businesses continue to expand, driving share gains among upper-income households and fueling growth of the Walmart+ membership program.
Separately, Walmart said it agreed to buy smart-TV maker Vizio Holding Corp. for about $2.3 billion. The deal would accelerate the retailer’s advertising business, called Walmart Connect, and help Walmart and its advertisers engage more with customers. Walmart has been expanding Walmart Connect and other nonretail businesses that have faster growth and better margins. The deal announcement confirmed a Wall Street Journal report from last week. Vizio shares soared 15% in Tuesday premarket trading.
As for WMT, the Bentonville, after the stock gained 16% over the past year, it jumped another 5.7% on Tuesday rising to a new all time high as investors were clearly satisfied with what they saw.
Full investor presentation below (pdf link)
