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Walmart (WMT) Beats on Q3 Earnings, Raises FY22 Outlook

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·7 min read
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  • WMT
  • BOOT
  • TSCO

Walmart Inc. WMT reported better-than-expected third-quarter fiscal 2022 results, wherein both top and bottom lines grew year over year. With more customers and members returning to stores and clubs demand seems to be strong. The company increased share in U.S. grocery market. Undoubtedly, the company’s solid efforts to enhance e-commerce game have been helping it stay firm against the growing competition.

Stronger-than-anticipated performance prompted management to lift U.S. comp sales and earnings projection for fiscal 2022. Walmart raised its earnings view for the third successive quarter. Chief Executive Officer Doug McMillon said, “We have the people, the products, and the prices to deliver a great holiday season for our customers and members.” We note that Walmart U.S. inventory was up 11.5% ahead of the festive season. Management envisions fourth-quarter U.S. comp sales, excluding fuel, to be around 5%.

Quarter in Detail

Walmart’s adjusted earnings of $1.45 per share rose 8.2% from the year-ago period figure, and comfortably beat the Zacks Consensus Estimate of $1.39. Total revenues of $140.5 billion grew 4.3% and came ahead of the consensus mark of $135.7 billion. On a constant-currency basis, total revenues climbed 3.3% to $139.2 billion. Revenues were hurt to the tune of about $9.4 billion related to divestitures.

Consolidated gross profit margin shrunk 42 basis points (bps) to 24.6% due to rise in supply chain costs, a higher mix of lower margin fuel business in the United States and a shifting international format mix. Gross margin at Walmart U.S. contracted 12 bps, thanks to elevated supply-chain costs. This was partly mitigated lower markdowns and increased contributions from Walmart Connect advertising revenues.

Consolidated operating income rose marginally 0.2% to $5.8 billion. However, the metric was adversely impacted by $0.4 billion related to divestitures, or about 750 bps. On a constant-currency basis, operating income declined 1.1% to $5.7 billion. Consolidated operating expenses, as a percentage of sales decreased 4 bps to 21.3%. This reflects robust sales growth and decline in expenses for COVID-19, offset by investments in wages.

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. Price, Consensus and EPS Surprise
Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote

Segment Details

Walmart U.S.: The segment’s net sales grew 9.3% to $96.6 billion in the reported quarter. U.S. comp sales, excluding fuel, improved 9.2% on the back of 5.7% rise in transactions and 3.3% increase in average ticket. Comp sales represented robust underlying business trends, led by in-store traffic, and aided by sturdy consumer spending due in part to stimulus as well as inflation. Comp sales grew across the general merchandise, grocery and health & wellness categories. The segment saw increased market share in grocery.

E-commerce contribution to comps was less than 10 bps. E-commerce sales in the segment rose 8%. On a two-year stack basis, e-commerce sales surged 87%, while Walmart Connect advertising sales soared roughly 240%. As of the third quarter, Walmart U.S. had 4,300 pickup locations and 3,300 same-day delivery stores. The company remodeled 174 stores during the reported quarter. Operating income at the Walmart U.S. segment grew 5.9% to $4.9 billion.

Walmart International: Segment net sales fell 20.1% to $23.6 billion, including positive currency impacts of about $1.3 billion. Divestitures hurt segment net sales by $9.4 billion. On a constant-currency basis, net sales dropped 24.6% to $22.3 billion. Strength in Flipkart, Mexico and China were upsides. E-commerce net sales contributed 19% of total segment net sales. Operating income, on a constant-currency basis, slumped 26.5% to $0.8 billion. Divestitures accounted for a reduction of $404 million year over year.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 19.7% to $19 billion. Sam’s Club comp sales, excluding fuel, grew 13.9%. While transactions grew 11.1%, average ticket rose 2.6%. Government stimulus and inflation also drove comp sales. Comp sales saw broad-based strength across categories — mainly led by food. However, tobacco hurt comp sales.

Membership income climbed 11.3% in the quarter, reflecting solid membership trends with record total member count. This, in turn, was a result of higher renewal rates, including increases in Plus member renewal rates as well as Plus penetration. Further, first-year member renewals were strong. E-commerce fueled comps by 170 bps. E-commerce net sales jumped 32% at Sam’s Club on a robust direct-to-home show and solid curbside performance. Segment operating income came in at $0.5 billion, up 10.2% year over year.

Other Financial Updates & Developments

Walmart ended the quarter with cash and cash equivalents of $16.1 billion, long-term debt of $36.4 billion and total equity of $90.8 billion.

In the year-to-date period, the company generated an operating cash flow of $16.3 billion and incurred capital expenditures of $8.6 billion, resulting in a free cash flow of $7.7 billion. For fiscal 2022, management anticipates capital expenditures of approximately $13 billion.

The company allocated $1.5 billion toward dividend payments and $2.2 billion toward share buybacks during the third quarter. Year to date, Walmart paid dividends worth $4.6 billion and repurchased shares worth $7.4 billion as part of its $20 billion buyback plan unveiled earlier this year.

Guidance

Walmart raised its guidance for fiscal 2022. The company now estimates U.S. comp sales, excluding fuel, to be above 6% versus its prior forecast of a 5-6% increase. Management guided adjusted earnings to be around $6.40 per share, up from its earlier projected range of $6.20-$6.35 per share.

Shares of this Zacks Rank #3 (Hold) company have gained 6.1% in the past six months compared with the industry’s growth of 6.7%.

3 Solid Retail Stocks

We have highlighted three better-ranked stocks in the Retail - Wholesale sector namely, Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Costco COST.

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have jumped 52.2% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share suggests growth of 54.4% and 183.3%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply Company, which operates as a rural lifestyle retailer in the United States, carries a Zacks Rank #1 The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of the company have jumped 20.2% in the past six months.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and earnings per share suggests growth of 19% and 23.9%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Costco, which operates membership warehouses, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 7.7%, on average. Shares of the company have jumped 35.9% in the past six months.

The Zacks Consensus Estimate for Costco’s current financial year sales and earnings per share suggests growth of 9.6% and 9.7%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.6% for three-five years.


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