A month has gone by since the last earnings report for Walmart (WMT Quick QuoteWMT - Free Report) . Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Walmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Walmart Q4 Earnings Miss Estimates, Sales Increase Y/Y

Walmart posted fourth-quarter fiscal 2021 numbers. Adjusted earnings came in at $1.39 per share, which lagged the Zacks Consensus Estimate of $1.51. Nonetheless, the figure grew 0.7% from adjusted earnings per share of $1.38 reported in the year-ago period. Total revenues grew 7.3% to $152.1 billion. On a constant-currency or cc basis, total revenues advanced 7.5% to $152.3 billion. The consensus mark stood at $148.5 billion. Net sales increased across all three segments of the company.

Consolidated gross profit margin expanded 29 basis points (bps) to 23.7%, including favorable contributions from all operating segments, especially the Walmart U.S. gross margin, which grew 20 bps on prudent sourcing efforts, reduced markdowns, better e-commerce margins, enhanced product mix and gains from a combined omni-merchandise organization. Consolidated operating income advanced 3.1% to $5.5 billion. However, adjusted operating income at cc dipped 3.2% to $5.7 billion due to elevated COVID-19 costs, along with repayment of property tax relief in the U.K. Incidentally, consolidated operating expenses, as a percentage of sales, increased 41 bps to 20.8%. The company incurred roughly $1.1 billion as additional costs related to COVID-19.

Walmart U.S.: The segment’s net sales grew 7.9% to $99.6 billion in the quarter. U.S. comp sales (or comps), excluding fuel, improved 8.6% on the back of a 21.9% rise in ticket, partly negated by a 10.9% fall in transactions. Comps were fueled by strength in most core categories, with general merchandise, grocery and health & wellness witnessing double-digit increases. Strong holiday season results and growth in January owing to stimulus spending benefited comps. Walmart continued to see customers consolidating their shopping trips, leading to a bigger average basket size. Further, transaction volumes increased, thanks to extended store hours. Also, the company continued seeing an increased shift toward e-commerce. E-commerce sales drove comps by 620 bps. E-commerce sales in the segment soared 69% with strength across all channels and solid holiday sales at Walmart.com. Notably, marketplace and pickup & delivery sales jumped at a triple-digit rate. As of the fourth quarter, Walmart U.S. had 3,750 pickup locations and 3,000 same-day delivery locations. The company remodeled 145 stores during the quarter. Adjusted operating income at the Walmart U.S. segment grew 6.5% to $5.2 billion.

Walmart International: Segment net sales rose 5.5% to $34.9 billion, including currency headwinds of about $0.3 billion. At cc, net sales grew 6.3% to $35.1 billion on the back of Walmex, Canada and Flipkart. The company saw seven out of nine markets registering positive comps. However, pandemic-related selling limitations weighed on operations in the second half of the quarter. E-commerce sales had a contribution of 18% to total segment sales. Adjusted operating income (at cc) declined 18.3% to $1 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales rise of 8.1% to $16.5 billion. Sam’s Club comps, excluding fuel, grew 10.8% on the back of broad-based category strength, mainly led by food and consumables. Comps were partially hurt by lower tobacco sales to the tune of around 410 bps. While transactions grew 8.4%, ticket climbed 2.2%. Membership income rose 12.9% in the fourth quarter, depicting the highest growth in six years. This, in turn, was a result of increased member count, overall renewal rates, Plus renewal rates and Plus penetration rates. Markedly, new member count improved roughly 28% in the quarter. E-commerce fueled comps by 280 bps. Markedly, e-commerce sales jumped 42% at Sam’s Club on the back of a robust direct-to-home show and solid curbside performance. Segment operating income came in at $0.4 billion, up 1.3% year over year.

Other Updates & Outlook

Walmart ended the quarter with cash and cash equivalents of $17.7 billion, long-term debt (including lease obligations) of nearly $58 billion and total equity of $87.5 billion. In fiscal 2021, the company generated operating cash flow of $36.1 billion and incurred capital expenditures of $10.3 billion, resulting in a free cash flow of $25.8 billion. The company allocated $6.1 billion toward dividend payments and $2.6 billion toward share buybacks during the fiscal. During fiscal 2021, the company raised its dividend for the 48th straight year and authorized a new share buyback plan of $20 billion. In fiscal 2022, the company expects capital expenditures of roughly $14 billion, with a focus on the supply chain, customer-facing efforts, technology and automation.

Walmart is moving ahead with its integrated omnichannel strategy, which concentrates on being the main destination for customers, undertaking innovation to improve digital customer experience, and investing in workers and creating opportunities by increasing wages for another 425,000 frontline workers. In the United States, Walmart is focused on making investments to ensure access to reasonable and high-quality healthcare options. Apart from this, the integrated omnichannel strategy includes focusing on active portfolio management and capital deployment. Walmart issued its guidance for fiscal 2022, which is based on the expectation that the sale of its business in Japan will be concluded in the first quarter of fiscal 2022. Incidentally, the company completed the divestiture of Walmart Argentina in November 2020 and Walmart U.K. in February 2021. Further, the view depends on the intensity and duration of the pandemic, effectiveness and timing of the vaccine, employment trends, consumer confidence, along with scale as well as the duration of the economic stimulus.  

Consolidated net sales in fiscal 2022 are anticipated to decline at cc. Excluding divestitures, management expects a low-single-digit rise in consolidated net sales. Comp sales at both Walmart U.S. (excluding fuel) and Sam’s Club (excluding fuel and tobacco) are expected to rise at a low-single-digit rate. Net sales in the Walmart International segment are anticipated to decrease at cc. Excluding the impact of divestitures, the growth rate is likely to be higher in the International segment than in the U.S. segment. Consolidated operating income is expected to drop marginally at cc, while it is anticipated to be flat to slightly up on excluding divestiture impacts. Consolidated operating income in Walmart U.S. is anticipated to grow slightly. Finally, Walmart envisions a marginal decline in adjusted earnings per share for fiscal 2022. Excluding divestitures, the same is anticipated to be flat to slightly up.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.39% due to these changes.

VGM Scores

At this time, Walmart has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Walmart has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.