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Why Is Walmart (WMT) Down 2.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Walmart (WMT - Free Report) . Shares have lost about 2.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Walmart Q1 Earnings Lag Estimates Due to Cost Inflation
Walmart reported first-quarter fiscal 2023 results. Adjusted earnings of $1.30 per share tumbled 23.1% from the year-ago period’s figure of $1.69 and missed the Zacks Consensus Estimate of $1.46. Total revenues of $141.6 billion grew 2.4% and beat the consensus mark of $138.3 billion. On a constant-currency (cc) basis, total revenues climbed 2.6% to $141.9 billion. Revenues were hurt to the tune of $5 billion due to divestitures and $0.4 billion due to currency movements.
The consolidated gross profit margin contracted by 87 basis points (bps), primarily due to Sam’s Club. The gross margin at Walmart U.S. fell 38 bps due to an adverse product mix, high supply-chain costs and increased markdowns, somewhat compensated by pricing.
The operating income at cc fell 22.7% to $5.3 billion. Consolidated operating expenses as a percentage of sales increased by 45 bps year over year, stemming mainly from elevated wage costs in Walmart U.S.
Walmart U.S.: The segment’s net sales grew 4% to $96.9 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 3% due to a 3% increase in the average ticket, with transactions remaining flat year over year. Comp sales were mainly driven by strength in food categories. Comp sales grew across the grocery and health & wellness categories. The segment continued to see an increased market share in grocery. E-commerce negatively impacted comps by 30 bps. E-commerce sales in the segment rose 1%. On a two-year stack basis, e-commerce sales surged 38%. As of the first quarter, Walmart U.S. had 4,600 pickup locations and more than 3,600 same-day delivery stores. The company remodeled more than 75 stores during the reported quarter. The operating income of the Walmart U.S. segment declined by 18.2% to $4.5 billion.
Walmart International: The segment’s net sales fell 13% to $23.8 billion. Divestitures hurt the segment’s net sales by $5 billion and currency movements had a $0.4 billion adverse impact. On a cc basis, net sales dropped 11.6% to $24.1 billion. Management witnessed positive comp sales across all markets. The operating income, on a cc basis, slumped 33.7% to $0.8 billion.
Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 17.5% to $19.6 billion. Sam’s Club comp sales, excluding fuel, grew 10.2%. While transactions grew 10%, the average ticket rose 0.2%. Comp sales saw broad-based strength across most categories, mainly led by food. However, tobacco hurt comp sales. Membership income climbed 10.5% in the quarter, reflecting solid membership trends, with a record total member count. The plus penetration rate also ascended and reached another all-time high. E-commerce fueled comps by 150 bps. E-commerce net sales jumped 22% at Sam’s Club on a robust direct-to-home show and solid curbside performance. The segment’s operating income came in at $0.5 billion, down 20% year over year.
Guidance
Walmart raised its net sales and comp sales view for fiscal 2023 while slashing its operating income and bottom-line guidance. The company now expects consolidated net sales growth of about 4% at cc. Excluding divestitures, the metric is likely to grow 4.5-5%. Management earlier anticipated consolidated net sales growth of nearly 3% at cc. Excluding divestitures, the metric was expected to grow nearly 4%. U.S. comp sales, excluding fuel, are likely to be roughly $3.5% now, compared with the slightly more than 3% growth expected before.
Management now expects the consolidated operating income to decline around 1% at cc and remain flat excluding divestitures. The consolidated operating income was previously expected to grow nearly 3% at cc and at a greater rate than net sales on excluding divestitures. Management now envisions earnings per share (EPS) to decline nearly 1% in fiscal 2023 and remain flat year over year, excluding divestitures. Earlier, the EPS was likely to grow in the mid-single-digit range. Excluding divestitures, it was expected to rise 5-6%.
For the second quarter of fiscal 2023, Walmart expects consolidated net sales growth of more than 5%. Comp sales growth at Walmart U.S. (excluding fuel) is likely to increase 4-5%. The consolidated operating income and EPS growth are expected in the range of flat to a slight increase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Walmart has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.
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Why Is Walmart (WMT) Down 2.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Walmart (WMT - Free Report) . Shares have lost about 2.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Walmart Q1 Earnings Lag Estimates Due to Cost Inflation
Walmart reported first-quarter fiscal 2023 results. Adjusted earnings of $1.30 per share tumbled 23.1% from the year-ago period’s figure of $1.69 and missed the Zacks Consensus Estimate of $1.46. Total revenues of $141.6 billion grew 2.4% and beat the consensus mark of $138.3 billion. On a constant-currency (cc) basis, total revenues climbed 2.6% to $141.9 billion. Revenues were hurt to the tune of $5 billion due to divestitures and $0.4 billion due to currency movements.
The consolidated gross profit margin contracted by 87 basis points (bps), primarily due to Sam’s Club. The gross margin at Walmart U.S. fell 38 bps due to an adverse product mix, high supply-chain costs and increased markdowns, somewhat compensated by pricing.
The operating income at cc fell 22.7% to $5.3 billion. Consolidated operating expenses as a percentage of sales increased by 45 bps year over year, stemming mainly from elevated wage costs in Walmart U.S.
Walmart U.S.: The segment’s net sales grew 4% to $96.9 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 3% due to a 3% increase in the average ticket, with transactions remaining flat year over year. Comp sales were mainly driven by strength in food categories. Comp sales grew across the grocery and health & wellness categories. The segment continued to see an increased market share in grocery. E-commerce negatively impacted comps by 30 bps. E-commerce sales in the segment rose 1%. On a two-year stack basis, e-commerce sales surged 38%. As of the first quarter, Walmart U.S. had 4,600 pickup locations and more than 3,600 same-day delivery stores. The company remodeled more than 75 stores during the reported quarter. The operating income of the Walmart U.S. segment declined by 18.2% to $4.5 billion.
Walmart International: The segment’s net sales fell 13% to $23.8 billion. Divestitures hurt the segment’s net sales by $5 billion and currency movements had a $0.4 billion adverse impact. On a cc basis, net sales dropped 11.6% to $24.1 billion. Management witnessed positive comp sales across all markets. The operating income, on a cc basis, slumped 33.7% to $0.8 billion.
Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 17.5% to $19.6 billion. Sam’s Club comp sales, excluding fuel, grew 10.2%. While transactions grew 10%, the average ticket rose 0.2%. Comp sales saw broad-based strength across most categories, mainly led by food. However, tobacco hurt comp sales. Membership income climbed 10.5% in the quarter, reflecting solid membership trends, with a record total member count. The plus penetration rate also ascended and reached another all-time high. E-commerce fueled comps by 150 bps. E-commerce net sales jumped 22% at Sam’s Club on a robust direct-to-home show and solid curbside performance. The segment’s operating income came in at $0.5 billion, down 20% year over year.
Guidance
Walmart raised its net sales and comp sales view for fiscal 2023 while slashing its operating income and bottom-line guidance. The company now expects consolidated net sales growth of about 4% at cc. Excluding divestitures, the metric is likely to grow 4.5-5%. Management earlier anticipated consolidated net sales growth of nearly 3% at cc. Excluding divestitures, the metric was expected to grow nearly 4%. U.S. comp sales, excluding fuel, are likely to be roughly $3.5% now, compared with the slightly more than 3% growth expected before.
Management now expects the consolidated operating income to decline around 1% at cc and remain flat excluding divestitures. The consolidated operating income was previously expected to grow nearly 3% at cc and at a greater rate than net sales on excluding divestitures. Management now envisions earnings per share (EPS) to decline nearly 1% in fiscal 2023 and remain flat year over year, excluding divestitures. Earlier, the EPS was likely to grow in the mid-single-digit range. Excluding divestitures, it was expected to rise 5-6%.
For the second quarter of fiscal 2023, Walmart expects consolidated net sales growth of more than 5%. Comp sales growth at Walmart U.S. (excluding fuel) is likely to increase 4-5%. The consolidated operating income and EPS growth are expected in the range of flat to a slight increase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Walmart has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.