Investing Club: Walmart's full-year guidance signals near-term bumps but a stronger back half

Published Thu, Feb 17 202212:53 PM ESTUpdated Thu, Feb 17 20221:59 PM EST

Investing Club holding Walmart (WMT) reported better-than-expected fiscal fourth-quarter 2022 results before the opening bell Thursday. Revenue of $152.9 billion (up 0.5% year over year) outpaced the $151.4 billion consensus while adjusted earnings of $1.53 per share came in better than the $1.49 per share the Street was looking for. Bottom line All in, while near-term growth will be pressured as Walmart laps the effects of federal Covid stimulus money and wage investments in last year, the longer-term outlook looks as strong as ever with full-year growth back half weighted and better than expected. Management is successfully navigating this difficult operating environment, characterized by supply chain disruptions and rising inflation, while continuing to strengthen the flywheel by bringing more customers, sellers and suppliers into the Walmart ecosystem. Investments in fulfilment capacity to support Walmart+, digitization and automation are resulting in improved operating efficiency, better customer convenience and revenue stream diversification. Dow stock Walmart was up around 3% in Thursday's rough market. Companywide results In addition to the headline numbers, Walmart reported adjusted operating income on constant currency (CC) basis of $5.887 billion (up 7.3% year over year), below the $6.207 billion expected as the absenteeism due to Covid in this quarter was the largest seen since the pandemic began and the team was forced to hire more associates than planned to fill the gap. As for cash flows, on a full-year basis, operating cash flow of $24.2 billion came in below the $28.4 billion expected while free cash flow of $11.1 billion came in below the $14.84 billion expected as capital expenditures of $13.1 billion were largely in line with expectations. On the call, management took some time to discuss the progress being made in building out the company's flywheel noting that they added 20,000 new sellers in calendar year 2021 and expect to add nearly 40,000 more in calendar year 2022. The team also opened the marketplace up to sellers from India, commenting that "growing our marketplace expands choice for our customers, helps our sellers grow and enhances our profit margins. Our plan for this year includes strengthening the experience for sellers and adding fulfillment capacity so customers have access to more items faster. It's clear to me that we have years of profitable marketplace and fulfillment services growth ahead of us." The Walmart flywheel also benefits from the fact that its stores serve as fulfillment centers as well, providing for faster delivery times and better customer convenience. In fact, in the U.S., orders delivered from stores increase by 170% in fiscal 2022, after already increasing by over 500% the prior year. Shareholder returns Walmart paid out $1.5 billion via dividends in its fiscal fourth quarter and returned an additional $2.4 billion out via share repurchases. This brings full year dividend payments to $6.2 billion and full year share repurchases to $9.8 billion. Looking to the year ahead, the board of directors has approved a 2% increase to the company's annual dividend to $2.24, up from the $2.20 payout in the just-finished fiscal year. That's the 49 th consecutive annual increase. Additionally, management plans to repurchase "at least $10 billion" worth stock in fiscal 2023. Guidance Looking ahead, management offered the following forecasts: Fiscal 2023 sales growth of roughly 3% constant currency (CC) was in line with expectations. Comparable sales guidance of "slightly above 3%, ex. fuel" was better than the 2.5% expected. Roughly 3% CC increase consolidated operating income was in line with expectations. Earnings growth of 5% to 6% excluding divestitures was better than the 5.1% expected at the midpoint. Capital expenditures guidance for the "upper end of 2.5% to 3.0%," was slightly above the 2.4% of sales the Street was modeling into the print. (However, given the strong comp guidance, we believe these investments warranted as they will focus on supply chain, automation, customer-facing initiatives and technology,) As for first quarter of 2023 and cadence throughout the upcoming year, management said on the call that due to the lapping of stimulus payments, U.S. comps are likely to be up 1% to 2% (below expectations of 2.7%), before picking up throughout the remainder of the year. The quarterly profit growth cadence is also expected to be variable due to the lapping of stimulus in the U.S. and wage investments initiated in February and September of calendar year 2021. Additionally, operating income and earnings in the first quarter are expected to be "down low double digits to low teens," missing expectations on both fronts for low single-digit declines. That said, management is expecting a bounce back in the second half of the year, with fourth quarter 2023 operating income and earnings increasing by a high teens on a percentage basis, above the high single-digit percentage increase the Street had been modeling. So, on a full-year basis the forecast was in line to better than expected. However, due to the effect of lapping stimulus and wage investments, near-term growth rates will be a bit lower than expected. Reported sales Walmart US revenue of $105.28 billion in Q4 beat expectations of $96.61 billion. Q4 Comp sales increased 5.6% year over year, with comp transactions growing 3.1% year over year, and the comp average ticket growing 2.4% year over year. Contributing to that comp growth was a high single-digit comp sales increase in grocery, mid-teens increase in health & wellness and low single-digit increase in general merchandise While Q4 e-commerce sales were up 1% year over year, they were up an impressive 70% on a two-year stack basis. Walmart International revenue of $26.997 billion in Q4 beat expectations of $23.63 billion. On the call, management commented that growth was led by China, Mexico and Flipkart in India "as seasonal events, omni growth and good inventory position contributed to results." Sam's Club revenue of $19.25 billion in Q4 beat expectations of $18.97 billion. Q4 Comp sales increased 16.3% year over year, with strength seen in most categories, led by food and partially offset by tobacco sales Q4 e-commerce sales were up 21% year over year, driven by both direct-to-hone and curbside. Q4 Membership income was up 9.1% year over year, with member count reaching a new record Membership and Other Income in Q4 of $1.35 billion beat expectations of $1.31 billion. Advertising breakout Lastly, for the first time, Walmart broke out the results of its global advertising business, which reached $2.1 billion for the full year "as the company's flywheel accelerates," and advertisers using the "Walmart Connect" increased by over 130% year over year. Of that $2.1 billion, again on a full year basis, Walmart recorded $1.6 billion in net sales with the remaining $500 million recorded as a "reduction to cost of sales." On the call, the team commented "As we bring more customers, sellers and suppliers into our ecosystem, it expands our ability to monetize those relationships. A great example is our advertising business. Globally, it's been growing at a high rate with high margins and is now a $2.1 billion business in only a few years, and we expect this strong growth to continue. And as our eCommerce business, including marketplace, continues to grow, so will our advertising business." Ultimately management expects to see Connect grow into a "top 10 ad business in the midterm." (Jim Cramer's Charitable Trust is long WMT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Shoppers walk in front of a Walmart store in San Leandro, California, U.S., on Thursday, May 13, 2021.

David Paul Morris | Bloomberg | Getty Images

Investing Club holding Walmart (WMT) reported better-than-expected fiscal fourth-quarter 2022 results before the opening bell Thursday.