Walmart Inc. (WMT Quick QuoteWMT - Free Report) ended fiscal 2023 on a solid note as the fourth-quarter top and bottom lines increased year over year and beat the Zacks Consensus Estimate. Strength in stores and e-commerce operations drove revenues, though increased markdowns dented the gross margin.

Quarter in Detail

Walmart’s adjusted earnings of $1.71 per share increased 11.8% from the year-ago period’s figure of $1.53. The metric surpassed the Zacks Consensus Estimate of $1.52.

Total revenues of $164 billion grew 7.3% and beat the consensus mark of $159.7 billion. On a constant-currency (cc) basis, total revenues climbed 7.9%. Revenue growth was backed by solid stores and e-commerce operations. The company witnessed broad-based strength in all segments.

The consolidated gross profit margin contracted by 83 basis points (bps) to 22.9%, mainly due to markdowns and the impact of a sales mix.

The adjusted operating income at cc rose 6.3% to $6.4 billion. Consolidated operating expenses as a percentage of sales declined by 44 bps year over year due to solid sales growth and reduced costs associated with COVID-19. This was partly offset by reorganization and restructuring charges in the International unit.

WMT’s global advertising business soared more than 20% due to Walmart Connect in the U.S. segment.

Segment Details

Walmart U.S.: The segment’s net sales grew 8% to $113.7 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 8.3% due to a 6.3% increase in the average ticket, with transactions rising 1.8% year over year.

Comp sales were mainly driven by strength in food categories, the solid sales of private brands, an elevated average ticket and increased store transactions. Comp sales grew across the grocery and health & wellness categories. The segment continued to see an increased market share in grocery.

E-commerce boosted comps by 140 bps. E-commerce sales in the segment rose 17%. On a two-year stack basis, e-commerce sales rose 18%. As of the fourth quarter, Walmart U.S. had more than 4,600 pickup locations and more than 3,900 same-day delivery stores. The company remodeled more than 200 stores during the reported quarter.

The gross margin at Walmart U.S. fell 112 bps due to increased general merchandise markdowns and a mix shift toward grocery. The operating income of the Walmart U.S. segment jumped 3.8% to $5.4 billion.

Walmart International: The segment’s net sales rose 2.1% to $27.6 billion. Currency movements had a $0.9-billion adverse impact. On a cc basis, net sales jumped 5.5%. Sales were largely driven by Walmex, China and Canada. The adjusted operating income, on a cc basis, grew 16.9% to $1.1 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 11.3% to $21.4 billion. Sam’s Club’s comp sales, excluding fuel, grew 12.2%. While transactions grew 6.7%, the average ticket rose 5.2%. Comp sales saw broad-based strength across most categories, mainly led by food and consumables. However, the partial exit from the tobacco category hurt comp sales.

The membership income climbed 7.1% in the quarter, reflecting strong membership trends and a record total member count. The plus penetration rate continued to rise. E-commerce fueled comps by 120 bps. E-commerce net sales jumped 21% at Sam’s Club on robust ship-to-home and curbside performances. The segment’s operating income came in at $0.5 billion, down 6.2% year over year.

Other Financial Updates & Developments

Walmart ended the quarter with cash and cash equivalents of $8.9 billion, long-term debt of $34.6 billion and total equity of $83.8 billion.

In fiscal 2023, WMT generated operating cash flow of $29.1 billion and incurred capital expenditures of $16.9 billion, resulting in free cash flow of $12.2 billion. In fiscal 2024, capital expenditures are likely to range between flat and slightly up compared with fiscal 2023.

The company allocated $6.1 billion for dividend payouts and $9.9 billion for share buybacks during the fiscal year. As of the fourth-quarter earnings release, the company had $19.3 billion remaining under its $20-billion buyback plan approved in November 2022.

In a separate release, the company unveiled an annual dividend hike of about 2%, taking it to $2.28 per share for fiscal 2024. This will be paid in quarterly installments of 57 cents per share.

FY24 Guidance

For fiscal 2024, Walmart expects consolidated net sales growth of nearly 2.5-3% at cc. U.S. comp sales, excluding fuel, are likely to grow 2-2.5%. Sam’s Club U.S. comp sales, excluding fuel, are likely to jump around 5%. International segment sales are expected to increase nearly 6% at cc in fiscal 2024.

Consolidated operating expenses (as a percentage of net sales at cc) are likely to rise slightly. Management expects the consolidated operating income to increase roughly 3% at cc. This includes a negative impact of around 100 bps from LIFO.

Management anticipates net interest expenses to escalate by approximately $750 million, causing a 20-cent headwind to the bottom line (in comparison with the year-ago period). An effective tax rate is likely to be 25.5-26.5%, a 10-cent headwind on earnings per share (EPS). The company also expects the noncontrolling interest to be a 12-cent headwind to the EPS.

Management envisions an adjusted EPS in the band of $5.90-$6.05 for fiscal 2024, including a 14-cent LIFO impact. The company posted an adjusted EPS of $6.29 in fiscal 2023.

Q1 View

For the first quarter of fiscal 2024, Walmart expects consolidated net sales growth of 4.5-5% at cc. Consolidated operating income growth is expected in the band of 3.5-4% at cc. This is likely to include a 235-bps adverse impact of LIFO. The adjusted EPS is likely to come in the range of $1.25-$1.30, including a 3-cent effect from LIFO.  

Walmart currently carries a Zacks Rank #3 (Hold). Shares of the company have declined 3.2% in the past three months compared with the industry’s decline of 3.6%.

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