Walmart Raises Full-year EPS Estimates Thanks to Strength in Grocery
Walmart is on a roll.
The Bentonville, Ark.-based retailer reported third-quarter earnings Tuesday morning before the bell, with an increase in revenues and continued gains online thanks to strength in grocery and a return to at least some in-person shopping. The company raised its full-year guidance as a result.
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“Our momentum continues with strong sales and profit growth globally,” Doug McMillon, president and chief executive officer of Walmart, said in a statement. “Our omnichannel continued focus is pushing digital penetration to record levels. We gained market share in grocery in the U.S. and more customers and members are returning to our stores and clubs around the world. Looking ahead, we have the people, the products and the prices to deliver a great holiday season for our customers and members.”
For the three-month period ending Oct. 31, total revenues increased 4.3 percent to $140.5 billion, up from $134.71 billion a year ago.
Walmart U.S. e-commerce sales grew 8 percent, year-over-year, during the most recent quarter. In August, McMillon said the company’s global e-commerce business was on track to reach $75 billion in revenues by the end of the year.
Net sales at Walmart U.S. rose 9.3 percent to $96.6 billion during the quarter, up from $88.4 billion the same time last year, while net sales at Walmart international fell 20.1 percent, or $5.9 billion, to $23.6 billion, down from $29.6 billion last year, negatively impacted by divestitures. Even so, Walmart international made gains in Mexico, China and India during the quarter.
Grocery revenues were a major growth driver throughout the company during the quarter, up nearly 10 percent, or $3.6 billion, year-over-year. Executives on Tuesday morning’s conference call told analysts that it was the strongest quarter for food sales in six quarters.
Other tailwinds included fewer markdowns, higher sell-throughs and larger transaction counts in stores, as well as strength in categories such as health and wellness, apparel, back-to-school, automotive and holiday décor.
“And we’re building businesses like Walmart GoLocal, Walmart Connect, Walmart Illuminate, Walmart Plus, Spark [Driver] delivery, our Marketplace and Walmart fulfillment services,” McMillon added on the call. “Financial services are another area where we know we can make a difference in the lives of so many.”
Walmart was also able to add approximately 200,000 new employees last quarter, despite industry concerns over labor shortages.
Still, the company logged just $3.1 billion in net profits for the quarter, down from $5.2 billion a year earlier, causing company shares to close down 2.54 percent Tuesday to $143.18 apiece. There are also continued supply chain headwinds and inflationary pressures that have investors worried.
But McMillon told analysts on the call that Walmart has been navigating economic cycles for 50 years.
“Fighting inflation is in our DNA,” he said. “Each [economic cycle] is unique and they require us to adapt. In this latest cycle, the pandemic caused shifts in how customers and members shopped and what they purchased. The long period of sustained demand for goods has stretched supply chains and resulted in shortages and inflation.
“We haven’t seen this kind of inflation in the U.S. for quite some time, but we have operated in markets where we’ve seen this basically forever and even more extreme, so that experience is helpful,” McMillon continued. “We do start with wanting to keep prices low. The purpose of the company is to save people money and help them live a better life and we get excited about trying to do that. And the company is kind of hedged well if you think about it with an inflationary environment. There are things that come along with that and in a deflation area environment, we can lead down and we’re a low-cost operator and we can take advantage of both situations. So in this case, our cost inflation is higher than our retail inflation — and that’s what we would want — but we’ve got lots of flexibility as we monitor price gaps to decide what we want to do with beef, with the inflation that’s happening there, and it becomes a mixed-management exercise, with us trying to serve the customer and members well, managing the bottom line. We would care a little less about how the gross margin and SG&A balance out as we would with what the net looks like. So, we’re managing in that fashion and that’s what you can expect us to do going forward.”
The CEO did admit, however, that “gas prices are a concern. They’re a concern not just in this country but everywhere. They’re up dramatically versus a year ago when the customer had money. And at some point, that’s going to come to an end. Hopefully that’s a gradual process and hopefully gas prices come down and we sell a lot of fuel in both Walmart and Sam’s Clubs. So, we’re hoping to keep those prices down.
“There are variables, like what happens with the virus; is the market going to continue opening up and people will consume services, travel and all those kinds of things and what does that mean to goods?” McMillon added. “So there’s a demand side of this, as well as a supply side of it and I don’t know that any of us could call exactly where the peak’s going to be. But it doesn’t really matter to us. We’re going to manage through it regardless of what happens and when we get an opportunity to take roll-backs, we’re out there asking suppliers, even now. [Asking] ‘do any of you want to get aggressive and swim upstream and take prices down while prices are going up to gain share?’ And we’ve got so many suppliers to work with and choose from that [the company] finds people in some categories that can do things. And as the months progress we expect to find more of them.”
The firm raised its full-year guidance, now expecting earnings-per-share to be around $6.40 apiece, up from its previous estimates of $6.20 and $6.35 each.
“[Walmart] is navigating the tough supply chain environment well, as inventories are up 11 percent [year-over-year], which should result in a strong holiday season,” Arun Sundaram, equity analyst at CFRA Research, wrote in a note. “We expect market share gains to continue since [Walmart’s] price gap versus competition typically widens during periods of heightened inflation.
The firm raised its 12-month price target on Walmart shares by $2 to $169 and maintained a “buy” position on the stock.
“We’re raising our opinion as we believe investors are underappreciating the breadth [and] depth of investments [Walmart] is making to deliver stronger, sustainable earnings growth post-COVID, which include areas like omnichannel, alternative profits, supply chain and product and geographic mix,” Sundaram wrote. “[Walmart’s] more diversified and resilient business model should result in stronger, more sustainable earnings growth.”
Earlier this month, the mass-channel merchant revealed that it is using driverless trucks to deliver groceries.
The company ended the quarter with $16.1 billion in cash and cash equivalents and $36.4 billion in long-term debt. Walmart has 10,500 stores in 24 countries around the world, along with its related e-commerce sites.
Shares of Walmart are down 4.1 percent, year-over-year.
“We’ve got a good start to the fourth quarter,” McMillon said on the call. “In the U.S., we’re ready for the holidays. There is a level of excitement in the air. You can feel it. We have the people, the products and the prices to deliver a great holiday season.”
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