Walmart (WMT) Cuts EPS View Amid High Inflation, Stock Down
Shares of Walmart Inc. WMT tumbled almost 10% during yesterday’s after-hours trading as management slashed second-quarter and fiscal 2023 bottom-line view. This is due to WMT’s pricing actions to improve inventory levels at Walmart and Sam’s Club in the United States as well as mix of sales. WMT highlighted that rising levels of food and fuel inflation are affecting customers’ spending.
Inflation Hurts Profit Outlook
Management now expects adjusted earnings per share (EPS) for the second quarter of fiscal 2023 to decline 8-9%. The metric was earlier anticipated in the range of flat to a slight increase. For fiscal 2023, adjusted EPS is now projected to decrease 11-13%. Excluding divestitures, fiscal 2023 adjusted EPS is expected to decline 10-12%. Earlier, management envisioned the bottom line to decline nearly 1% in fiscal 2023 and match the year-ago reported figure, excluding divestitures.
The operating income for the fiscal second quarter is now expected to decline 13-14%. The metric was earlier anticipated in the range of flat to a slight increase. For fiscal 2023, operating income is now projected to decrease 11-13%. Excluding divestitures, fiscal 2023 operating income is expected to decline 10-12%. Earlier, management expected the metric to decline around 1% at cc and be flat, excluding divestitures.
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Management noted that food inflation is in double digits, above the levels at the end of the fiscal first quarter. Escalated food inflation is hurting consumers’ spending capacity on general merchandise categories, thus demanding increased markdowns to move through the inventory, especially for apparel. The company is expecting increased pressure on general merchandise in the back half of the year. That said, Walmart made headways to reduce inventory, manage prices and reduce storage costs during the quarter.
Raised Top-Line View
Given the escalated level of inflation and trends in the fiscal second quarter, management raised its fiscal 2023 top-line view. Net sales view reflects a currency headwind of nearly $1 billion in the fiscal second quarter and $1.8 billion in the back half of the year.
Consolidated net sales growth for fiscal 2023 is expected to be about 4.5%. Excluding divestitures, consolidated net sales growth is likely to be nearly 5.5% in fiscal 2023. Management had earlier expected consolidated net sales growth of about 4% at cc. Excluding divestitures, the metric was likely to grow 4.5-5%. WMT expects Walmart U.S. comp sales growth (excluding fuel) of approximately 3% in the back half of fiscal 2023.
For the second quarter of fiscal 2023, Walmart now expects consolidated net sales growth of 7.5%, up from the previous view of more than 5% growth. Management now expects comp sales growth for Walmart U.S., excluding fuel, to be nearly 6% for the fiscal second quarter. Earlier, comp sales growth at Walmart U.S. (excluding fuel) was anticipated to increase 4-5%. The raised view implies a greater mix of food and consumables, albeit adversely impacting the gross margin rate.
Walmart currently carries a Zacks Rank #3 (Hold). WMT’s stock has dipped 2.8% in the past six months compared with the industry’s 1.9% decline.
3 Solid Retail Picks
Here are some better-ranked stocks, namely Dollar Tree DLTR, Kroger Co. KR and Macy's, Inc. M.
Dollar Tree, a discount variety retail store operator, currently sports a Zacks Rank #1 (Strong Buy). DLTR has an expected EPS growth rate of 15.5% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dollar Tree’s current financial-year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s actuals. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.
Kroger, a renowned grocery retailer, carries a Zacks Rank #2 (Buy) at present. Kroger has a trailing four-quarter earnings surprise of 20.3%, on average. KR has an expected EPS growth rate of 11.3% for three to five years.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 6.7% and 6.3%, respectively, from the corresponding year-ago period’s readings.
Macy's, an omnichannel retail organization, presently carries a Zacks Rank of 2. M has a trailing four-quarter earnings surprise of 198%, on average.
The Zacks Consensus Estimate for Macy's current financial-year sales suggests growth of 0.7% from the year-ago period’s reported figure. M has an expected EPS growth rate of 12% for three to five years.
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