Walmart comfortably topped holiday-quarter earnings and sales targets, but officials on an analyst call delivered weak guidance for the current year due to high prices and the potential for further macro pressures, foreshadowing a tough year for the retail sector.
On the call, CEO Doug McMillon said consumers are still making purchases, but they’re being “choiceful, discerning, thoughtful” about them.
He added, “When you think about our guidance and the place we positioned it, it’s obviously not as clear to us what the back half of the year looks like.”
CFO John David Rainey added, “While the supply chain issues have largely abated, prices are still high and there is considerable pressure on the consumer, attempting to predict with precision these swings in macroeconomic conditions and their effect on consumer behavior is challenging.”
He added, “We could tilt into a recession. We don’t know what happens to consumer spending. We don’t know what happens to layoffs, household income. We’re so early into the year and there’s a lot of unknowns right now.”
For the current fiscal year ended January 2024, Walmart projects adjusted earnings between $5.90 per share and $6.05 per share, down from $6.29 per share reported for fiscal 2023. Wall Street’s consensus estimate had been $6.50.
The company projects 2.5 percent to 3 percent net sales growth. Wall Street’s consensus growth estimate had been 3.30 percent.
Walmart’s same-store U.S. sales, excluding fuel sales, are seen rising 2 percent to 2.5 percent for the fiscal year. Sam’s Club comparable sales are expected to increase by 5 percent.
For its fiscal 2024 Q1 results, Walmart’s release guided net sales to increase 4.5 percent to 5 percent. Adjusted earnings are projected to range between $1.25 and $1.30 per share, compared to $1.30 reported in Q1 FY22.
Home Depot, which also reported holiday results on Tuesday, also shared a muted outlook. It said it expects same-store sales to be approximately flat in the coming fiscal year.
In the fourth quarter ended January 27, Walmart’s adjusted earnings jumped 11.8 percent to $1.71 per share on 7.3 percent revenue growth to $164 billion. Analysts expected profit to edge down slightly to $1.52 per share as sales rose 4.5 percent to $159 billion. The adjusted earnings excluded $1.16 in net gains on equity and other investments, as well as a 55-cent reorganization and restructuring charge.
Gross margins were down 83 basis points, largely resulting from additional markdowns taken to address carryover inventory balances, mix headwinds and underlying inflation in its cost structure. With strong sales growth in the quarter, SG&A expenses were levered by 89 basis points.
Walmart’s same-store sales excluding fuel in the U.S. rose 8.3 percent, including 17 percent growth in e-commerce with a combination of pricing due in part to inflation and share gains.
For Walmart U.S., comp sales were strong throughout the quarter, and December was the largest sales month in Walmart U.S. history. The gains were led by strength in food sales, which increased high teens partially offset by a mid-single-digit decline in general merchandise sales with softness in toys, electronics, home and apparel.
Product mix shifts negatively impacted margins for the Walmart U.S. segment. . Over the last year, grocery and health and wellness sales, which have a lower margin than general merchandise, have increased by 330 basis points as a portion of the mix. Strong gains continue to be seen in grocery with nearly half coming from higher-income households and private brand penetration increased over 160 basis points as customers prioritize value.
Inflation remained high, up mid-teens in food categories, which was similar to Q3 levels. E-commerce sales were led by continued strong growth in store-fulfilled pickup and delivery in Q4.
Over the last two years, store-fulfilled delivery sales have nearly tripled. Advertising sales were also strong in the quarter, up 41 percent. Higher sales and lower COVID costs contributed to SG&A expense leverage, which offset gross profit pressure, resulting in operating income growth for the Walmart U.S. segment of 3.8 percent.
Among other segments, Sam’s Club comparable sales rose 12.2 percent in the quarter. The company’s international revenue rose 2.1 percent to $27.6 billion, led by increases in Mexico and Central America, China and Canada.
Companywide inventory at quarter end was relatively flat to last year, including a nearly 3 percent decrease from Walmart U.S., due to aggressive markdown efforts to rebalance elevated inventories that had developed earlier last year. McMillon said inventory levels came in better-than-anticipated “and even better when you consider how inflation lifts that number. And they did it while improving in-stock levels.”
Highlights of the fourth quarter’s outperformance included market share gains in the U.S. and Canada due to the retailer’s strong positioning around food and consumables.
He said Walmart is “naturally hedged” to benefit regardless of the environment. McMillon said, “If customers want more of something and less of something else, we shift our inventory. If the economy is strong, our customers have more money, and that’s great. If things are tougher, they come to us for value.”
He added, “With today’s inflation, we’re continuing to see that happen. We’re gaining share across income cohorts, including at the higher end which made up nearly half of the gains we saw in the U.S. again this quarter.”
He also said Sam’s Club in the U.S. is likewise gaining share with both mid- and higher-income shoppers. McMillon stated, “Our goal is for the experience they’re having in our stores and clubs combined with our current capabilities for pickup, delivery and membership to result in them choosing us even as inflation eventually subsides.”
Photo courtesy Walmart/New York Times
