Three factors that could be pressuring Walmart after reporting an earnings beat

Published Tue, Nov 16 202112:14 PM EST

Walmart reported Tuesday better-than-expected quarterly earnings and revenue , but the stock fell more than 2%. There are three disconcerting issues from its earnings report that could be weighing on the stock: 1. Profit margins disappoint Wall Street Walmart's gross margin of 24.6% is 0.42 percentage points lower from a year ago. The company cited increased supply chain costs for the decline. Walmart's gross margin was also below StreetAccount's 25.2% consensus estimate. Fortunately for Walmart, the retailer overcame weaker margins with increased traffic and higher average ticket totals. 2. Digital sales growth misses expectations While U.S. same-store sales topped estimates, it was a completely different story for digital sales. Headed into the report, analysts had been expecting Walmart U.S. e-commerce sales to soar 20.5%, according to Refinitiv. Instead, the company saw 8% growth. But maybe analysts were just way too optimistic. Like other retailers, Walmart is facing very tough comparisons from this time last year. In the year-ago quarter, Walmart's digital sales soared 79%. So another 8% growth on top of last year's surge is nothing to sneeze at. In fact, on a two-year basis, digital sales are up 87%. Still, it's notable that the quarter wasn't as good as the Street had hoped on the digital sales front. 3. Beware of the guidance A big question this retail earnings season is how well consumer spending will hold up this holiday season, as inflation keeps rising amid strong demand and supply chain constraints. With third-quarter results appearing to be strong across the retail companies that have already reported, it's important to look more carefully when companies give full-year guidance and neglect to provide a specific outlook for the fourth quarter. At times that full-year forecast may be a bit deceiving, as it is in Walmart's case. Walmart has had a strong year — it has beat earnings estimates in each of the first three quarters. As a result, the company raised its full-year earnings per share guidance to $6.40 adjusted, above Refinitiv's consensus estimate of $6.33. However, the retailer did not give an outlook for the fourth quarter. Although the company's new full-year guidance is higher than its previously-issued forecast, a closer look shows that the revised outlook isn't overwhelmingly bullish. After accounting for the strong results during the first three quarters of the year (EPS of $4.92 during the first three quarters), Walmart's full-year outlook implies fourth-quarter guidance of $1.48 — exactly in line with estimates.

People wearing protective masks shop in a Walmart store on May 18, 2021 in Hallandale Beach, Florida.

Joe Raedle | Getty Images

Walmart reported Tuesday better-than-expected quarterly earnings and revenue, but the stock fell more than 2%.

There are three disconcerting issues from its earnings report that could be weighing on the stock: