Walmart results reveal interesting info and significant share price moves

Walmart’s Q1 2023 earnings results gave investors good and bad news. It beat sales estimates but missed earnings per share forecasts.

Walmart’s sales of $141.57 billion were higher than the $138.94 billion estimate, but its earnings per share of $1.30 were lower than the expected $1.48.

A particularly interesting piece of information was Walmart’s adjusted sales and operating profit.

The net sales were adjusted to increase by 4% over the year – up from 3% – and profits were adjusted downwards to decrease by 1% over the year.

Walmart reported that customers shifted their expenditure to lower-margin goods like eggs and bread. The low-end goods increased sales but did not add much to the bottom line.

The retailer said inflationary pressures could be seen in the overall customer behaviour, with basket prices increasing by 3% while the basket sizes have fallen.

The market reacted swiftly to the earnings miss and profit revision. Walmart’s share price fell 20% in the four days following the announcement.

Walmart’s Q2 2023 looked much better, with revenue at $152.86 billion, beating the consensus forecasts and earnings per share (EPS) of $1.77, exceeding forecasts of $1.62.

Since the announcement, Walmart’s share price has increased by 5%.

After the Q2 results, Walmart CFO John David Rainey reiterated that consumer spending patterns have changed.

He told CNBC news that Walmart has been seeing more high and middle-class customers in its stores.

Customers have been substituting more expensive items for less expensive ones, with chicken and canned tuna sales increasing relative to beef, for example.

The number of items sold per customer has also fallen with an increase in credit sales.

Because of the changing consumer behaviour, Wallmart expected its adjusted EPS to decline between 9% and 11%. It was an upward revision of the previous 10% to 12% expected decline.

Increasing inventories

Earlier this year, Walmart noted that it had aggressively increased its inventory stocks to stay ahead of inflation. It currently has 25% more inventory than a year before.

Rainey explained that 40% of the excess inventories are due to inflation, adding that Walmart’s inventory growth is 15% higher than the desired level.

The below graph indicates Walmart’s elevated inventory levels.

The last word

Despite significant challenges, Walmart managed to have a successful quarter with comparable sales growth of 6.5% led by demand in food categories and private brand sales.

Walmart managed to grow its e-commerce sales by 12%, reporting a strong start to the back-to-school season.

Walmart has also been successful in generating revenue from alternative sources. Its global advertising sales increased by 30%, led by Walmart Connect and Flipkart.

The retailer’s data shows that Americans have adjusted their spending because of the impact of high inflation and rising fuel prices. 

However, Walmart is doing a good job at managing this environment and ensuring it grows sales and earnings in a depressed economy.