Walmart surges after quarterly results, ignores negative guidance

As investors assessed the recent earnings report, Walmart completely erased Tuesday’s opening losses and jumped more than 3%.

Earnings came out positive, outlook not so much

Walmart’s adjusted earnings increased by 11.76% to $1.71 per share on the back of a 7.3% increase in revenue to $164 billion. According to FactSet, analysts anticipated a marginal decline in earnings to $1.52 per share on a 4.5% growth in revenue to $159 billion.

The figures represent two consecutive quarters of quickening profitability growth, while Walmart’s average sales growth over the prior year was 5.9%.

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The company’s same-store sales, excluding gasoline, increased by 8.3% in the United States. In addition, Walmart’s internet sales increased by 17% annually. The company’s overseas sales jumped by 2.1% to $27.6 billion, driven by growth in Mexico, Central America, China, and Canada.

High costs harmed sales as customers shifted their spending priorities to essentials. For example, Walmart said that grocery sales surged by the mid-teens, while spending on pharmacy and other health and wellness products rose by a low double-digit proportion. Yet, sales of general products decreased by a percentage in the middle of the single digits.

Furthermore, Walmart generated $12.2 billion in free cash flow for the whole year and returned $16 billion to shareholders ($6.1 billion in dividends and $9.9 billion in buybacks).

Lastly, the management announced a $0.04 dividend increase to $2.28 per share. That was the 50th year in a row that Walmart increased its dividend.

Worrisome outlook

But while the firm surpassed forecasts for the current quarter, its outlook worried markets: the company anticipated that adjusted earnings for the current fiscal year would decrease by as much as 6.2% to a range of $5.90 to $6.05 per share.

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Wall Street had predicted a 3.8% increase to $6.53 (for the first quarter). Moreover, Walmart estimates adjusted earnings from $1.25 to $1.30. In addition, WMT anticipates total net sales growth of 2.5% to 3%.

Michael Lasser of UBS observes that this year’s estimate falls short of the company’s long-term goal of generating 4% sales growth.

In addition, Walmart’s outlook commentary did not inspire confidence at all. According to the company, there is tremendous uncertainty around the remainder of the year. Moreover, the customer is still subject to pressure. Thus, the company guidance represents a conservative view of the macroeconomic climate.

But, Landon Luxembourg, an analyst with the research company Third Bridge, argues that people monitoring their spending might benefit Walmart.

“During the epidemic, retailers such as Target (TGT) profited from a trade-up customer attitude,” Luxembourg said in a note following earnings. 

Walmart is in an ideal position to profit as consumers become more cost-conscious and choose less expensive options.