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Why Is Walmart (WMT) Down 3.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Walmart (WMT). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Walmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Walmart Ups Guidance on Q2 Earnings & Revenue Beat

Walmart posted robust second-quarter results. Adjusted earnings came in at $1.78 per share, which increased 14.1% from the year-ago period figure as well as the Zacks Consensus Estimate of $1.56. Total revenues grew 2.4% to $141 billion. On a constant-currency or cc basis, total revenues climbed 0.6% to $138.6 billion. The consensus mark stood at $136.6 billion. We note that revenues were hurt to the tune of about $8.9 billion by recent divestitures related to the Walmart International business.

Consolidated gross profit margin shrunk 15 basis points (bps) to 24.8%. Gross margin at Walmart U.S. grew 20 bps on COVID-19 vaccines, certain favorable comparisons with the year-ago period and reduced markdowns. This was partly negated by elevated supply-chain costs. Consolidated operating income advanced 2.4% to $141 billion, courtesy of the overall company strength. Adjusted operating income at cc jumped 10.6% to $7.2 billion. Consolidated operating expenses, as a percentage of sales contracted 81 bps to 20.4%. Consolidated operating income as a percentage of sales expanded 83 bps and adjusted operating income as a percentage of sales rose 50 bps.

Walmart U.S.: The segment’s net sales grew 5.3% to $98.2 billion in the reported quarter. U.S. comp sales, excluding fuel, improved 5.2% on the back of a 6.1% rise in transactions (backed by stores), partly negated by a 0.8% fall in average ticket. Comp sales exceeded expectations, representing robust underlying business trends; a strong U.S. economy and gains from stimulus. Comp sales grew across the general merchandise, grocery and health & wellness categories. The segment saw increased market share in grocery. E-commerce sales drove comps by 20 bps. E-commerce sales in the segment rose 6%. On a two-year stack basis, e-commerce sales soared 103%. Walmart Connect advertising sales surged 95%. Adjusted operating income at the Walmart U.S. segment grew 12% to $6.1 billion.

Walmart International: Segment net sales fell 15.2% to $23 billion, including positive currency impacts of about $2.4 billion. Recent divestitures hurt segment sales by $8.9 million. At cc, net sales dropped 24% to $20.6 billion. Strength in Flipkart, Mexico and China were upsides. E-commerce sales had a contribution of 19% to total segment sales. Adjusted operating income (at cc) slumped 20% to $0.7 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales rise of 13.9% to $18.6 billion. Sam’s Club comp sales, excluding fuel, grew 7.7%. While transactions grew 5.1%, average ticket rose 2.5%. Gains from government stimulus also boosted comp sales. Comp sales saw broad-based strength across categories — mainly led by food. However, these were partially hurt by lower tobacco sales. Membership income climbed 12.2% in the quarter, with the total member count being at an all-time high. This, in turn, was a result of higher renewal rates, including increases in Plus renewal rates, as well as Plus penetration rates. Further, first-year member renewals were strong. E-commerce fueled comps by 180 bps. E-commerce sales jumped 27% at Sam’s Club on a robust direct-to-home show and solid curbside performance. Segment operating income came in at $0.7 billion, up 11.5% year over year.

In the year-to-date period, the company generated an operating cash flow of $12.4 billion and incurred capital expenditures of $5 billion, resulting in a free cash flow of $7.4 billion. In fiscal 2022, management still expects capital expenditures of roughly $14 billion.

Guidance

Walmart raised its guidance for fiscal 2022, Consolidated net sales in fiscal 2022 are now anticipated to increase slightly at cc. Excluding divestitures, management expects consolidated net sales growth of 6-7%, or greater than $30 billion. Earlier, consolidated net sales were anticipated to decline in low-single digits (at cc). Excluding divestitures, management previously expected consolidated net sales growth in low-to-mid-single digits. Comp sales in Walmart U.S. (excluding fuel) are likely to be up 5-6%, and at Sam’s Club, comp sales (excluding fuel and tobacco) are anticipated to increase 7.5-8.5%. Earlier, comp sales in both Walmart U.S. (excluding fuel) and Sam’s Club (excluding fuel and tobacco) were expected to rise at a low-single-digit rate.

Net sales in the Walmart International segment are now anticipated to tumble 21.5-22.5% at cc due to divestitures. Excluding the impact of divestitures, net sales are likely to grow 7-8%. Earlier, net sales in the Walmart International segment were anticipated to decline 20-25% at cc due to divestitures. Excluding the impact of divestitures, net sales were likely to grow in mid-single digits.

Consolidated operating income (at cc) is now expected to rise 9-11.5%, while it is anticipated to jump 11.5-14% excluding divestiture impacts. Prior to this, consolidated operating income was forecasted to rise in mid-single digits (at cc), while it was estimated to jump high-single digits excluding divestiture impacts. Consolidated operating income in Walmart U.S. is anticipated to grow 11-13.5% now compared with high-single digit growth projected earlier. Finally, Walmart envisions earnings per share in the range of $6.20-$6.35. Earlier, Walmart projected high-single-digit growth in adjusted earnings per share for fiscal 2022. Excluding divestitures, the same was anticipated to jump low-double digits.

For the third quarter of fiscal 2022, the company anticipates comp sales (excluding fuel) in Walmart U.S. to increase 6-7%. Earnings per share are expected to come in a band of $1.30-$1.40.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Walmart has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Walmart has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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