Walmart Inc. grew solidly through the holiday season, topping fourth-quarter earnings and sales projections — but weaker projections for the year ahead set Wall Street on its guard.
After starting off down, shares of Walmart rebounded, trading up 0.6 percent to $147.33 on Tuesday.
Walmart — like other retailers — is reverting back to its mean after the wild swings of the pandemic and while it struggles with inflation and macroeconomic uncertainty.
The retail giant projected its revenues would rise by 2.5 percent to 3 percent in the coming year — a big step back from the 6 percent average of the past five years and growth last year of 6.7 percent, to $611.3 billion.
John David Rainey, executive vice president and chief financial officer, told analysts on a conference call that Walmart is in what’s become a familiar bind.
“We find ourselves in a similar position to each of the last three years, where there is a great deal of uncertainty looking out over the balance of the year,” Rainey said. “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. As such, our guidance reflects a cautious outlook on the macro environment, but at the same time, our excitement about our recent results, momentum in all segments and progress on our strategy both for this year and the years that follow.”
Investors are still recalculating as they figure just what that all means after a holiday season that was strong overall, but weaker on the apparel front.
Fourth-quarter net income increased 76.2 percent to $6.3 billion, or $2.32 a diluted share, from $3.6 billion, or $1.28 billion, a year ago. But the gross profit rate declined 83 basis points from a year ago, due to markdowns and the mix of goods sold. On the plus side for the company’s finances, operating expenses as a percentage of sales fell 44 basis points as a result of sales growth and lower COVID-19 related costs.
Adjusted earnings per share, excluding gains from investments and restructuring charges, tallied $1.71 — 20 cents better than the $1.51 analysts projected for the quarter.
And revenues for the quarter ended Jan. 31 increased 7.3 percent to $164 billion from $152.9 billion, topping the $159.8 billion Wall Street expected.
Comparable sales at the Walmart U.S. division grew 8.3 percent from a year earlier and 13.9 percent from two years ago, with e-commerce up 17 percent and 18 percent, respectively.
The retailer said comps were strong throughout the quarter and that December was the namesake division’s biggest month ever.
Food sales saw an increase in the high teens, gains that were offset by mid-single-digit declines in general merchandising sales, with softness seen in toys, electronics, home and apparel.
Doug McMillon, president and chief executive officer, projected confidence and said: “The holidays were strong for us. From Thanksgiving to Christmas to Diwali to Singles Day, our teams were ready. We had aggressive plans and we delivered. Around the world, the teams leaned into our food and consumables strength, taking share in places like the U.S. and Canada and delivered a good experience for customers and members in general merchandise. They drove sales and landed the seasons in a very good inventory position when it was all said and done. We ended the quarter with inventory about flat to last year, which is better than we anticipated and even better when you consider how inflation lifts that number.”
The fourth-quarter marked a resurgence for Walmart, which had to move fast earlier in the year to combat inflation.
For the full year, Walmart’s net income slipped 14.6 percent to $11.7 billion, or $4.27 a share, from the $13.7 billion, or $4.87, logged during 2021.
Investors, though, are reading the tea leaves for the future.
For the first quarter, Walmart projected adjusted earnings per share of $1.25 to $1.30, less than the $1.36 analysts projected. And for the full year, the company expects adjusted profits of $5.90 to $6.05, below the $6.50 analysts had penciled in.
Neil Saunders, managing director of GlobalData, said Walmart “remains the leader of the pack in retail,” but still has plenty of challenges.
“There is not so much that Walmart can do about weaker demand among its core shoppers,” Saunders said. “However, to convert more middle- and higher-income segments it needs to improve both its assortments and the way it presents them in store. The problem with Walmart in general merchandise is that it acts and thinks like a grocery player — merchandising in a very functional fashion with little to no flair. This is not enticing or appealing to many shoppers and makes assortments seem uninteresting, which reduces conversion and purchasing rates.
“Walmart seems to recognize this which is why it is committed to improving store environments,” he said. “To date, it has rolled out a handful of remodeled stores, including its North Bergen SuperCenter in New Jersey. These refreshed shops elevate visual merchandising and are encouraging shoppers to browse for longer and have a positive impact on sales.”