Analysts at Citibank and Stephens Inc. believe Walmart will slightly beat consensus when the retail giant releases its third-quarter results on Tuesday, November 15, but they say net profit will be lower in part due to continued pressure on margins. .
Walmart is expected to report net income of $3.64 billion, or $1.32 per share, for the third quarter, down 7.7% year-over-year. For the quarter ending Oct. 31, Walmart is also expected to report revenue of $140.525 billion, up 4.3% from a year ago. Gross profit margins continue to be tight due to inflation.
The consensus estimate indicates that Walmart’s key same-store sales metric is up 3.7% for the quarter. Sam’s Club is expected to record same-store sales growth of 8.2%. E-commerce sales growth is expected to reach 25% from the year-ago quarter, adding 2.9% to Walmart’s U.S. same-store sales. Sam’s Club is expected to see e-commerce sales growth of 30%, adding 2.7% to comparison store sales growth at clubs.
Stephens Inc. is bullish on Walmart shares despite the share price falling in recent months. Stephens analyst Ben Bienvenu expects gross margins to fall 1% year-over-year to 23.6% and operating profit margins to fall 0.46% year-over-year at 3.7%. He said the margin squeeze was tied to a shift from general merchandise to food, as well as excess inventory levels requiring more markdowns. (Stephens provides investment banking services for Walmart and is compensated accordingly for this service.)
Wells Fargo Securities economists say many consumers are still struggling with significantly higher food and fuel prices compared to a year ago in October’s Consumer Price Index report (CPI) from November 10.
“Higher prices, coupled with a tough environment and higher interest rates, have caused consumers to take a hard look at their budget to prioritize what’s most important. As consumers seek value and strive to stretch paychecks further, we believe Walmart is well positioned to benefit from increases during previous recessions,” said Bienvenu.
Bienvenu has a one-year target price of $165 on Walmart stock. The broader consensus estimate is more conservative at $152.94.
Walmart’s performance during the 2001 recession included an 8.1% gain in the stock price from March 2001 to November 11, compared to 12.7% From 2007 to 2009 during the Great Recession, the stock price of Walmart rose 5.6% while the S&P 500 lost 36.3% in market value. During the brief 2020 recession linked to the COVID-19 shutdown, Walmart shares lost 0.3% of their value compared to 23.4% losses for the S&P 500 index, according to Stephens Inc.
While Walmart has raised prices for some food items due to grain price inflation resulting in part from Russia’s invasion of Ukraine, the retail giant has pledged to use its scale and its extensive relationships with its suppliers to keep prices low for as long as possible.
Analysts also expect Walmart and Sam’s Club to see less of a drop in foot traffic in stores compared to traditional grocery store rivals. Basket sizes are also expected to be smaller as consumers cut more non-discretionary purchases, economists said. Given Walmart’s financial strength and scale, the retailer should weather the holidays well, but there will continue to be challenges, according to Bain & Co.
“U.S. retailers are navigating a holiday season filled with uncertainty. Headlines are full of mixed macro indicators, ranging from declining consumer confidence and rising interest rates to low unemployment and wage increases,” Bain reported.
Bain said retailers from Walmart to Target don’t have last year’s inventory constraints, but are sitting on hefty amounts of inventory that’s bold for a highly promotional holiday season — weighing again on the margins. In some gift categories, merchandise could be marked down by more than 20% on retailer websites, according to Adobe Analytics, which tracks online sales. Computers, electronics and toys are all set to hit the highest discount levels since Adobe started tracking the numbers in 2017.
Shares of Walmart (NYSE:WMT) closed Friday at $142.58, up 25 cents. Shares have traded between $166.77 and $117.27 over the past 52-week period. Walmart’s stock value is down 2.34% year-to-date.