Walmart Shares Slump as Full-Year Sales Forecasts, Q4 Profit Disappoints
Bentonville, Arkansas-based retailer Walmart reported better-than-expected revenue in the fourth quarter but surprised traders with a rare profit miss and said it expects full-year sales and earnings to decline primarily due to the impact of anticipated divestitures.
Following this disappointing result, Walmart‘s shares, which surged more than 20% last year, slumped over 6% to $138.03 on Thursday.
The multinational retail corporation that operates a chain of hypermarkets said total revenue jumped 7.3% to record $152.1 billion in the quarter ended January 31, 2021 and during the fiscal 2021 year it surged 6.7% to $559.2 billion.
The closely watched same-store sales rose 8.6% in the U.S., beating the Wall Street consensus estimates of 5.6%. That was largely driven by online sales, which grew 69% due to the COVID-19 pandemic.
“Walmart’s (WMT) comps were better than expected including an 8.6% increase in the WMT U.S. business, ahead of consensus of 5.6% and an acceleration from 6.4% last quarter. Gross margins were up 29bp, in line with estimates and off just a bit from 50bp last quarter,” said Michael Baker, MD and senior research analyst at D.A. Davison & Company.
“But this strength is being overshadowed by higher expenses, including deleverage in the international and Sam’s businesses. This led to EPS of $1.39 or $1.46 adding back a $0.07 tax issue. This is in line with our estimate of $1.45 but below consensus of $1.51. We would buy the associated pressure in the stock today.”
The retail giant said its operating income surged more than 3% to $5.49 billion. On the other hand, adjusted earnings came in at $1.39 per share, missing analysts’ expectations of $1.51 per share.
The world’s largest retailer forecast adjusted net sales to grow low single-digits with operating income and EPS expected to be flat to up slightly.
“Guidance was muted, locking in gains from FY21 but stalling profit expansion in favour of critical investments in people (avg wage to >$15) and platform (capex +33% vs. prior levels). We’re specifically looking to test the degree of conservatism in guidance as new streams of value take hold and COVID-19 costs should moderate,” noted Stephanie Wissink, equity analyst at Jefferies.
Walmart Stock Price Forecast
Eleven analysts who offered stock ratings for Walmart in the last three months forecast the average price in 12 months of $161.33 with a high forecast of $177.00 and a low forecast of $131.00.
The average price target represents a 16.22% increase from the last price of $138.82. From those 11 analysts, nine rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $156 with a high of $240 under a bull scenario and $95 under the worst-case scenario. The firm gave an “Overweight” rating on the multinational retail corporation’s stock.
Several other analysts have also updated their stock outlook. Oppenheimer lowered the price target to $162 from $165. JP Morgan cut the price target to $157 from $160. Deutsche Bank raised the target price to $170 from $168. Credit Suisse Group gave a target price of $161 and rated “buy”.
Moreover, Royal Bank of Canada set a $170.00 price objective and gave the company a “buy” rating. DA Davidson lifted their price objective to $177 from $154 and gave the company a “buy” rating. Smith Barney Citigroup lifted their price objective to $172 from $155. Jefferies Financial Group lifted their price objective to $170 from $165 and gave the company a “buy” rating.
“Q4’21 EPS light. F’22 underlying growth guidance seems fine, but absolute F’22 EPS lower than expected. Investments picking back up mean the stock could tread water in the N-T,” said Simeon Gutman, equity analyst at Morgan Stanley.
“We expect WMT to sustain recent momentum in its core business in F’21/F’22 and see a growing ability to balance longer-term investments with near-term returns. Our OW rating and $156 PT are underpinned by a preference for 1) quality players with scale and 2) defensive retailers in the current COVID-19 environment.”
Upside and Downside Risks
Risks to Upside: 1) Comps accelerate to +MSD-HSD led by continued Grocery strength. 2) Sustainable US e-comm growth of 50-60%+ behind Click & Collect momentum. 3) PhonePe gains wider market appreciation, driving incremental multiple expansion. 4) Walmart+ gains more traction than expected – highlighted by Morgan Stanley.
Risks to Downside: 1) E-commerce loses begin to rise again after briefly moderating. 2) US e-comm growth slows to<30% (comps<2%). 3) Greater than expected Flipkart losses.
Check out FX Empire’s earnings calendar