Walmart profits are coming. What to expect.

0

Text size

Walmart is an indicator of the state of the economy in several ways.

Apu Gomes/AFP via Getty Images

Walmart will release its results this week, and what it has to say about the consumer will not only set the tone for retail earnings season, but offer clues about the health of the US economy.

walmart

(ticker: WMT) is expected to release its first quarter fiscal report on Tuesday morning. Consensus calls for earnings per share of $1.47 on revenue of $138.78 billion.

In February, Walmart delivered an upbeat fourth quarter and offered comments that calmed at least some nerves about the state of consumer spending, especially for its top low-income customer. Even more encouraging, many retailers across all industries and income brackets followed suit, echoing Walmart’s results with strong fourth quarters and, in many cases, an upbeat full-year outlook.

Still, many retail stocks continued to post steep declines, with the


SPDR S&P Retail

exchange-traded funds (XRT) down more than 6% in the last month alone.

That’s largely because a lot has happened since Walmart’s last report. E-commerce companies mostly delivered pessimistic forecasts. Inflation has continued to soar to multi-decade highs as gas prices soar above 2008 levels and the Russian invasion of Ukraine renders necessities like food more expensive. Geopolitical uncertainty is never good news for consumer confidence, which could be further shaken by rising interest rates and headlines about a possible recession.

Some fear this is a self-fulfilling prophecy, given that roughly 70% of US gross domestic product is tied to consumer spending.

Walmart is an indicator, not only because of its size, but also because it tends to serve a low-income population. They are of particular concern, given that they are the hardest hit by soaring costs of basic necessities, and are also likely to feel the hardest loss from government stimulus.

Ultimately, Walmart may once again be able to reassure the market. Comparing 2022 to pre-pandemic levels of 2019, Placer.ai data complied for Barrons shows that weekly visits in the quarter to April 18, the last available, were generally down around 2% to 3%, a figure not that far off from fourth quarter levels.

Additionally, as the company notes, consumers may be able to purchase more essentials at one time, thanks to the one-stop nature of its stores, helping to offset the drop.

Target

(TGT), it should be noted, showed even stronger weekly visits trends for its quarter, which is due for release on Wednesday.

Also, some of that business may have simply continued to migrate online, as Walmart has steadily gained retail e-commerce market share since September 2021, according to data compiled for Barrons by market research firm YipitData.

Strong April comparable store sales from the warehouse discounter

Wholesale Costco

(COST) could also bode well for Walmart’s quarter. Like Barrons previously noted, a return to brick-and-mortar shopping could mean a less bleak outlook from brick-and-mortar retailers than their online counterparts.

Analysts are certainly bullish – nearly three-quarters of the 35 tracked by FactSet rate it as a buy or the equivalent, while there are no bearish calls on the street. The analysts’ average price target is $166. The shares were recently trading at $147.48 and are up about 1.9% so far this year.

That said, what propels the results will be of equal importance: gains in low-margin areas like groceries may be less telling than more discretionary categories like apparel and electronics that shoppers find easier to reduce, but any cadence on how shoppers are handling higher prices for essentials will be helpful.

Investors will be especially keen to know if Walmart reaffirms its full-year guidance or changes any of the terms it uses to describe continued consumer strength.

Write to Teresa Rivas at [email protected]


Source link

Share.

About Author

Comments are closed.