Walmart Bucks Surging Costs, Supply Chain Chaos With Strong Results And Outlook, $10 Billion Stock Buyback

Walmart Bucks Surging Costs, Supply Chain Chaos With Strong Results And Outlook, $10 Billion Stock Buyback

Walmart reported Q4 earnings which again topped estimates on Thursday after shoppers turned to the retailer for groceries and gifts over the holidays and said it’s focused on value as some customers grow nervous about inflation. The company also raised its dividend by a cent to 56 cents per share, and unveiled a new buyback of at least $10 billion for fiscal 2023;  Looking ahead the largest US bricks and mortar retailer unveiled an upbeat sales outlook for the current fiscal year despite persistent cost pressures and flagging consumer sentiment

Here is what the company reported for the fourth quarter:

Revenue $152.87 billion, +0.5% y/y, beating the estimate $151.67 billion

Total U.S. comparable sales ex-gas +6.3%, in line with the estimate +6.31%
Walmart-only U.S. stores comparable sales ex-gas +5.6%, beating the estimate +5.5%
Sam’s Club U.S. comparable sales ex-gas +10.4%, beating the estimate +9.84%
Walmart-only U.S. comparable ticket +2.4%, missing the estimate +2.75%
Walmart-only U.S. comparable transactions +3.1%, missing the estimate +3.5%
Change in U.S. E-Commerce sales +1%, missing the estimate +2.22%

Adjusted EPS $1.53 vs. $1.39 y/y, beating the estimate $1.51

Some more details:

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

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.

Walmart’s same-store sales in the U.S. rose by 5.6%, excluding fuel, matching the 5.6% expected by a StreetAccount survey.

Walmart’s U.S. e-commerce sales, a closely watched metric, rose just 1% in the fourth quarter, disappointing analysts who were looking for a 2.2% gain. Online sales got a substantial boost during pandemic lockdowns, but demand has been slowing as shoppers venture back into stores. To further boost its e-commerce business, the retailer last year debuted Walmart+, an online subscription offering, to compete with Inc.’s Prime program. Walmart has said little about the initiative’s performance, even downplaying its importance.

CEO Doug McMillon was quite upbeat: “We had another strong quarter to finish off a strong year. We have momentum in our business in all three segments. We’re being aggressive with our plans and executing on the strategy. It’s exciting to see how the teams are simultaneously navigating today’s challenges and reshaping our business.”

The results underscore Walmart’s efforts to navigate scarce transportation capacity, a labor squeeze and rising fuel costs that are combining with robust demand to spur the fastest growth in U.S. consumer prices in four decades. U.S. retail sales in January rose the most in 10 months, signaling resilient demand despite surging inflation and the weakest consumer confidence in a decade.

The company 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.

CFO Brett Biggs said in a CNBC interview that the discounter is closely watching price gaps as inflation drives the costs of meat and other foods higher.

“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. “This type of environment plays to our strengths.” However, Biggs also said that growth is driving up Walmart’s total sales as store and website traffic increased 3.1% and the company gained market share in grocery in the quarter.

Similar to other retailers, Walmart lamented the continued chaos in the supply chain,. 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. Yet despite the higher costs, Walmart’s gross and operating margins expanded as the company passed on these costs and more to consumers.

As Bloomberg notes, the Bentonville, Arkansas-based retailer, which for decades has based its strategy on everyday low prices, is vying for more customers as the rising inflation rate prompts shoppers to look harder for bargains. But higher costs for merchandise, transportation and labor pose a growing threat to profitability.

That’s raising the stakes as Walmart and other retailers decide how much vendor price increases they will pass along to consumers. Last quarter, comparable sales at Walmart’s U.S. stores rose 5.6% with market share gains in the grocery business, while analysts had predicted 5.5%.

Looking ahead, Walmart said that comparable sales will post a percentage gain “slightly above 3%” excluding fuel during the current fiscal year, which ends in early 2023, the retailer said in a statement Thursday as it reported earnings. That suggests a better performance than the 2.7% average gain expected by analysts.

Here is the full guidance:

Sees 2023 Net Sales Increase About 3% Constant FX
Guides Fy23 in-Line With Growth Outlined Last Feb.
Sees 2023 Net Sales About +4% Ex- Divestitures

The strong results are likely to be seen as a bellwether as other large U.S. retailers prepare to release earnings. Home Depot Inc., Macy’s Inc. and Lowe’s Cos. report next week, followed the week after by Target, Costco and Best Buy Co. 

WMT shares rose as high as 2.7% in premarket trading after closing at $133.53 on Wednesday. Walmart, which has a market value of just over $370 billion, had fallen 7.7% this year through Wednesday, compared with a 2.4% drop in an S&P index of consumer staples companies. Last year, Walmart dramatically underperformed retail stock indexes and rivals such as Target Corp. and Costco Wholesale Corp.

Tyler Durden
Thu, 02/17/2022 – 09:07

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