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Walmart Reports Strong Quarterly Results Amid Economic Challenges, Announces Vizio Acquisition and Dividend Hike

Bruno T
Latest News
February 20 2024 5:37AM

Walmart (NYSE:WMT) delivered another quarter of impressive results, concluding the year on a strong note as its competitive pricing continues to draw consumers seeking value in a challenging economic climate marked by recent inflationary pressures.

However, with inflation quickly subsiding, Walmart has observed a decrease in customer spending per visit and, on Tuesday, issued a conservative earnings outlook.

In a strategic move to enhance its advertising business, Walmart has confirmed its acquisition of smart TV manufacturer Vizio for $2.3 billion. This acquisition grants Walmart access to Vizio’s SmartCast operating system, enabling the retail giant to offer its vendors opportunities to showcase advertisements on streaming platforms. Walmart highlighted that Vizio’s SmartCast system boasts 18 million active accounts.

Additionally, Walmart announced its most significant dividend increase in over a decade, prompting a surge in its shares by more than 5% prior to Tuesday’s market opening.

Despite economic uncertainties, the American consumer has shown resilience, supported by a robust job market and stable income levels. However, a noticeable pullback in spending was observed in January following the holiday spending spree.

As one of the initial major U.S. retailers to disclose quarterly figures, Walmart’s report could shed further light on consumer sentiment, especially in the wake of the government’s announcement of a marked decline in consumer spending last month.

Economists have attributed this spending reduction partly to adverse weather conditions, but also suggest that Americans might be feeling the strain of heightened interest rates and other financial challenges, with potential implications extending beyond Walmart. Consumer spending constitutes approximately two-thirds of U.S. economic activity.

Walmart has leveraged its influence to collaborate with suppliers in managing inflationary pressures. CEO Doug McMillon informed industry analysts on Tuesday that prices for general merchandise are currently lower than they were a year or even two years ago in certain categories. The grocery sector presents a mixed picture, with items such as eggs, apples, and deli snacks being more affordable than the previous year, while prices for asparagus and blackberries have seen an increase.

McMillon noted that prices for dry groceries and consumables, including paper products and cleaning supplies, have risen by mid-single-digit percentages compared to last year and by high teens compared to two years ago.

Walmart continues to serve customers in need of essentials, but it is also attracting households with annual incomes exceeding $100,000. Notably, two-thirds of Walmart’s market share gains in general merchandise have come from this higher-income group.

For the quarter ending January 31, Walmart reported earnings of $5.49 billion, or $2.03 per share, down from $6.27 billion, or $2.32 per share, in the same quarter of the previous year. Adjusted earnings were $1.80 per share.

Revenue increased by 5.7% to $173.38 billion, surpassing analysts’ expectations of $1.64 per share on sales of $170.85 billion, according to FactSet.

Comparable store sales, a critical measure of retail performance, grew by 4%, a slowdown from the 4.9% growth seen in the Walmart U.S. division in the preceding quarter and the 6.4% growth in the second quarter. Global e-commerce sales climbed by 23%, a significant increase from the 15% growth in the prior quarter.

However, the average spending per shopping trip dipped by 0.3% from the previous year, despite a 4.3% increase in the number of transactions. The decline in inflation is positive, but it necessitates Walmart and other retailers to intensify their efforts to sell more products.

The company’s global advertising revenue experienced a roughly 28% increase, reaching $3.4 billion.

Walmart recently unveiled plans to construct or transform over 150 stores in the next five years, alongside remodeling existing locations. This marks a significant shift from 2016 when Walmart announced a slowdown in new store openings to focus more on online sales and technological advancements to compete with Amazon. Notably, Walmart has not inaugurated a new store since late 2021.

Walmart remains committed to its stores, evidenced by enhanced benefits for its U.S. store managers announced last month.

Starting with the current fiscal year, Walmart has introduced stock grants of up to $20,000 annually for U.S. store managers.

For the first quarter, Walmart anticipates earnings per share to range between $1.48 and $1.56, below the analysts’ forecast of $1.60 per share. The company expects a 4% to 5% increase in net sales.

For the entire fiscal year, Walmart projects earnings to be between $6.70 and $7.12 per share, with analysts having anticipated $7.06 per share, according to FactSet. The company foresees a 3% to 4% rise in sales for the year, a deceleration from the previous year.

Walmart’s shares experienced a nearly 6% increase, climbing by $9.51 per share to $179.87 on Tuesday.