Walmart’s Raised Guidance Not Enough to Stop Share Price Slide
Updated Nov. 16 3:34 p.m. EST
Walmart Inc. has raised its full-year guidance, but this was not enough to stop its share price from sliding on the back of investor jitters over the prospect of deflation.
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Delivering its latest set of financial results, the Bentonville, Ark.-based retail giant said it is now expecting net sales growth of between 5 percent to 5.5 percent for fiscal 2024, up from 4.5 percent to 5 percent.
Adjusted EPS is forecast between $6.40 and $6.48. Previously it estimated $6.36 to $6.46. This, however, was below analysts’ forecasts of $6.48.
During a call with analysts, Doug McMillon, president and chief executive officer of Walmart, said: “Our value proposition resonates more than ever when the consumer is pressured. And we’ve seen this year that they not only were coming to us for the value that we provide but also for the convenience.”
Nevertheless, its share price closed down 8 percent to $156.04. While Walmart performed well, Wall Street was expecting even more.
Investors were also spooked by McMillon’s comments on deflation. While high food prices continue to persist and are putting pressure on customers who pulled back on spending in late October, there were some pockets of disinflation, and more could be on the way.
“We think we may see dry grocery and consumables start to deflate in the coming weeks and months and so as we look ahead to next year, we could find ourselves in Walmart U.S. with a deflationary environment,” McMillon said.
Falling food prices are good news for customers who’ve been plagued for months by the soaring cost of daily essentials, but there are concerns among investors that it could hit the retailer’s top and bottom lines (groceries make up half of Walmart’s sales), although McMillon appeared confident in Walmart’s strategy.
“If we end up where both sides, food and general merchandise, are deflated, then we just need to focus on driving even more units,” he said. “But if they’ve got dollars to spend, they’ll spend them.”
In the third quarter, revenue was $160.8 billion, up 5.2 percent, or 4.3 percent in constant currency. Sales strength was led by grocery and health and wellness, while general merchandise sales declined modestly.
Of the pull back in spending in October, John David Rainey, Walmart’s chief financial officer, said sales have been uneven.
“Recently, we’ve experienced a higher degree of variability in weekly performance and between holiday events in the U.S., including seeing a softening in the back half of October that was off-trend to the rest of the quarter,” he told analysts. “Sales during November have turned higher, as unseasonal weather abated and we kicked off holiday events. So sales have been somewhat uneven, and this gives us reason to think slightly more cautiously about the consumer versus 90 days ago.”
Operating income was $3.5 billion. Adjusted EPS was $1.53, above Wall Street forecasts of $1.52.
Of the results, Neil Saunders, managing director of GlobalData, said, “Walmart was up against several challenges this quarter: a slowing consumer economy, a moderation in inflation and tough prior-year comparatives. It has comfortably cleared all these hurdles to produce another very strong set of results. Total sales growth of 5.2 percent is impressive, and in monetary terms means the businesses added almost $8 billion to the top line compared to the prior year. This was driven by good performances in both the domestic and international segments.”
Earlier this week,Target Corp. squeezed big profit gains out of a 4.2 percent revenue decline in the third quarter — managing costs closely as consumers continued to pull back on discretionary spending. And investors applauded the effort, pushing shares of the discounter up a dramatic 17.8 percent to $130.46 on Wednesday.
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