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Walmart turned in another blowout quarter as more shoppers sought out its low prices, but the retailer offered a cautious outlook for the current fiscal year because of rising economic uncertainty.
Consumers are getting squeezed as interest rates climb and savings rates fall, Walmart Chief Financial Officer John David Rainey said Tuesday.
That threatens spending even as the company contends with pressures of its own, such as higher interest expense, taxes and the impact of its purchase of full ownership of South African retailer Massmart, which owns Makro, Builders Warehouse and Game, and a US automation provider.
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“Our value proposition is certainly resonating with consumers right now, but there’s a lot of macroeconomic uncertainty,” Rainey said in an interview with Bloomberg TV. “We’re adopting a cautious outlook and we want to make sure we’re responsive to whatever environment we’re going to find ourselves in.”
The outlook sets a relatively low bar and opens a potential path for Walmart to exceed expectations as the year goes on, particularly if it continues to grab more market share. The retailer has put last fiscal year’s profit-sapping inventory surge behind it, and Wall Street analysts are already suggesting that Walmart has room to reward investors with pleasant surprises later on.
The company’s “guidance looks conservative and sets an appropriate baseline to over-deliver,” Morgan Stanley analyst Simeon Gutman said in a note to clients. “The guide looks conservative on sales and appears to be extrapolating current margin headwinds into next year. Overall, we think the earnings bar is being set reasonably given an uncertain backdrop.”
The shares were up 0.9% at 11:23 a.m. in New York amid broad market declines. Walmart climbed 3.3% this year through Feb. 17, while the S&P 500 index advanced 6.2%. Walmart outperformed the S&P 500 and major retail indexes last year.
Earnings pressure
Annual adjusted earnings will fall to as little as $5.90 a share, pressured by a 42-cent drag from higher interest expense, taxes and the acquisition of full ownership of a South African retailer and a US automation provider.
The outlook also includes a 14-cent hit from last-in, first-out accounting, Walmart said in a statement. Wall Street had estimated earnings of $6.53 a share.
At US Walmart stores, comparable sales excluding fuel will gain no more than 2.5% during the current fiscal year, which ends in early 2024, Bentonville, Arkansas-based Walmart said. That trails the 3.1% average of analyst estimates compiled by Bloomberg.
During the last fiscal year as a whole, adjusted earnings fell to $6.29, the first full-year decline for the profit measure in six years.
In last year’s fiscal fourth quarter, which ended Jan. 31, adjusted earnings came in at $1.71 a share. Analysts had projected $1.52. Sales rose 7.3% to $164 billion, compared with the average estimate of $159.6 billion.
