Retail

Walmart tops quarterly estimates, backs long-term forecast as it focuses on value amid rising food prices

Key Points
  • Walmart topped earnings expectations and reiterated its long-term forecast, which calls for adjusted earnings per share growth in the mid single-digits.  
  • The big-box retailer is a bellwether of inflation because of its huge store footprint, diverse customer base and heavy emphasis on groceries.
  • The company's stock has underperformed on Wall Street over the past 12 months.

In this article

A worker delivers groceries to a customer's vehicle outside a Walmart Inc. store in Amsterdam, New York, on Friday, May 15, 2020.
Angus Mordant | Bloomberg via Getty Images

Walmart on Thursday said shoppers turned to its stores for gifts and groceries during the holiday season, pushing company's quarterly earnings beyond Wall Street's expectations despite supply chain pressures and rising costs.

The retailer said it is focused on value and new ways to make money, especially as tries to woo customers with low prices and attract investors with higher profits during a period of inflation.

Walmart shares rose 4% Thursday to close at $138.88, despite a decline in the broader market due to rising tensions on the Russia-Ukraine border. The company reiterated its outlook, which was above average analyst forecasts.

Chief Financial Officer Brett Biggs said the discounter will keep prices competitive, even as costs of meat and other foods climb.

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"We know that consumers are focused on inflation, and we're continuing to watch key item pricing to ensure that we help them through this," he said in an interview with CNBC. "This type of environment plays to our strengths."

Yet he said Walmart's sales growth isn't coming purely from price increases. Store and website traffic rose 3.1% in the quarter, as the company gained market share in grocery.

Walmart is chasing new revenue streams, as it looks beyond retail. CEO Doug McMillon said those younger businesses, such as advertising, its third-party marketplace and online grocery delivery, are gaining momentum.

Biggs said the company's supply chain costs were $400 million higher in the quarter than planned. As omicron peaked, Covid leave costs rose $300 million higher than expected, he said.

Walmart recently announced that its paid Covid leave will end March 31, except as required by state or local mandates. Biggs said some of the retailer's supply chain challenges and costs will persist into the first half of year.

Walmart gains ground in grocery

Here's what the company reported for the fiscal fourth quarter ended Jan. 31, according to Refinitiv consensus estimates:

  • Earnings per share: $1.53 adjusted vs. $1.50 expected
  • Revenue: $152.87 billion vs. $151.53 billion expected

Walmart posted net income of $3.56 billion, or $1.28 per share, compared with a loss of $2.09 billion, or 74 cents per share, a year earlier. Excluding items, the company earned $1.53 per share. Analysts were expecting Walmart would earn $1.50 per share, according to Refinitiv.

Total revenue rose slightly to $152.87 billion from $152.08 billion a year earlier, above Wall Street's expectations of $151.53 billion.

Walmart's same-store sales in the U.S. climbed by 5.6%, excluding fuel, matching the 5.6% expected by a StreetAccount survey. Same-store sales increased by the high single-digits for grocery, and sales in the health and wellness, apparel, seasonal and automotive categories were strong, too, Biggs said.

Walmart's e-commerce sales in the U.S. increased 1% versus the year-ago quarter — or 70% on a two-year basis.

Walmart-owned Sam's Club saw growth in both sales and membership. Its same-store sales jumped by 10.4% in the fourth quarter compared with the year-earlier period, and were up 21.2% on a two-year basis. The company does not disclose membership count, but said membership income grew by 9.1% in the fourth quarter.

Robby Ohmes, a retail analyst for Bank of America, said in a research note on Thursday that Walmart should keep gaining share in grocery as inflation "likely drives greater consumer price sensitivity." Plus, he said, more millennials are buying homes in the suburbs and shopping at big-box stores where they can get a wide variety of merchandise during a single trip.

Walmart said it's on track to hit its long-term financial targets, which call for adjusted earnings per share growth in the mid-single digits in the new fiscal year. Growth at that pace is above average analyst forecasts. 

In the coming year, Walmart said it expects the company's total sales to rise about 4% and same-store sales for Walmart U.S. to increase by a little more than 3%, excluding the impact of divestitures. Biggs said same-store sales growth will be more limited in the first quarter – about 1% to 2% – as Walmart laps a period of stimulus-fueled spending.

Edward Yruma, a retail analyst for KeyBanc Capital Markets, said Walmart is navigating inflation pressures well — but said the environment is tough for all retailers, even ones that cater to tight budgets. On top of higher prices, he said, this year could bring a more meaningful shift back to experiences as people spend on restaurants, travel and gym memberships or add back other budget items like gas as they commute to work again.

Last year, he said, the delta and omicron variants disrupted that expected shift and the consumer "was in such a strong spot that they could spend on experiences and spend on things."

"It's not clear that can repeat again," he said.

Chasing new business

Walmart's stock has underperformed the broader market. As of Wednesday's close, shares of the company had fallen 9% over the past 12 months compared with 14% growth for the S&P 500 and 1% growth of XRT, the exchange-traded fund for the retail sector.

The company has tried to win over Wall Street by investing in higher-margin businesses. Among those, it debuted a subscription service, announced big ambitions for its ads business, funded a fintech start-up and launched a last-mile delivery service. It has put a novel spin on its core business of grocery, too, by expanding its direct-to-fridge delivery service, InHome.

On Thursday, McMillon said the company's advertising business, Walmart Connect, has grown to $2.1 billion. Its active advertisers grew more than 130% year over year, the company said.

The Walmart-backed fintech start-up, led by a former Goldman Sachs executive, will jump in size as the company closes two acquisitions.

Walmart's third-party marketplace and its last-mile delivery service, GoLocal, are getting bigger, too. GoLocal has nearly a thousand pickup points where the company's contractors retrieve purchases from Home Depot and other retailers to deliver to customers.

Walmart added more than 20,000 new sellers in the U.S. last year and plans to add nearly 40,000 more this year, McMillon said. The marketplace now includes nearly 170 million unique items and it is open to sellers in India, he said.

Growth of one business supports the others, he said. For instance, a larger marketplace and higher online sales attract more ad dollars. "There is real power in the ability to make these pieces mutually reinforcing," he said.

Scot Ciccarelli, a retail analyst for Truist Securities, said in a research note Thursday the success of those businesses is even more crucial during a period of inflation. By making money in other ways, Walmart can subsidize its retail business and keep prices for grocery and other household goods low. Those deals, in turn, help draw customers and potentially win more of their wallets.

He said he is cautious about Walmart, however, since low- and middle-income families may soon start to pullback on spending.

He has a hold rating on the company and his price target is $153.00, about 10% above where shares are currently trading.

Walmart raised the company's dividend by a cent to 56 cents per share, and said it plans to repurchase $10 billion of its own stock in fiscal 2023. 

Read the company's news release here.

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