Walmart Inc. will report second-quarter earnings results for the fiscal year 2023 before market opens on Tuesday, Aug. 16.
According to Bloomberg’s consensus estimate, the company is expected to earn $1.65 per share on $150.83B in revenue.
Previous Quarter Review
Walmart reported total revenue of $141.6 billion for the first quarter, up 2.4% year over year, negatively affected by $5.0 billion due to divestitures.
For the period, the company reported earnings per share (EPS) of $1.30, well below consensus estimates of $1.48 per share. This is the company’s first miss in five quarters, largely attributable to rising costs.
According to Walmart leadership, the drop in profit came as a surprise — and as a partial consequence of changes to spending habits amid this year’s market pullback. With rampant inflation, Walmart reported that lower-income shoppers are gravitating toward low-cost food, which offers weaker returns.
What to Watch in 2Q Release?
Walmart's 2Q release should hold few surprises, given a business update on July 25 that downgraded its quarterly and full-year profit outlook. Operating income is expected to drop 13-14% in 2Q and adjusted EPS 8-9%. The company said 2Q US same-store sales, excluding fuel, may be about 6%.
Adjusted EPS May Drop 8% to 9% in 2Q
Walmart said it estimates adjusted earnings per share for the second quarter to now decline around 8% to 9%, compared with the flat to slightly up it previously anticipated.
Walmart raised its forecast for U.S. comparable sales, excluding fuel, to 6%, however, mainly to account for the rise in food prices. It previously expected those sales to be up 4% to 5%.
With prices for gasoline and food spiking, consumers are cutting back on purchases of discretionary items, saddling retailers with mountains of inventory including apparel, home goods, appliances and kitchen ware.
Supply chain snafus and miscalculations around demand have added to problems. In May, Walmart said it was sitting on over $60 billion of inventory at the end of the first quarter. It promised "aggressive" price cuts on items such as apparel.
Full-Year Profits Would Fall
Walmart Inc said its 2022 profits would drop much further than previously forecast assurging prices for food and fuel prompted customers to cut back on discretionary purchases.
Walmart said full-year profits would now decline 11% to 13%, much steeper than the 1% fall it previously forecast. It pledged to cut prices of clothing and general merchandise more aggressively than it did in May to reduce a spring backlog.
Excluding divestitures, full-year earnings per share are expected to drop 10% to 12%, the company said.
Neil Saunders, managing director at GlobalData called the warning a "cause for concern" that highlights the pressure that all retailers are currently under.
"The increasing levels of food and fuel inflation are affecting how customers spend ... we're now anticipating more pressure on general merchandise in the back half," Doug McMillon, Walmart's chief executive officer, said.
Inventory Issues Remain as Spending Shifts
Inflation remains a challenge, with the company already seeing an acceleration in the mix shift of sales and margin, as customers spend more on food and less on discretionary items.
Walmart, which disclosed inventory pressures at the end of 1Q, may have been successful at reducing hardline category items through its Walmart Plus member sales event in June. However, more markdowns will be needed to move through apparel overstocks.
Price inflation means that households are spending a larger share of their budgets on food. Additionally, Walmart's profit margins on food are lower than its margins on general merchandise, and sales of those more profitable categories are slowing. Walmart noted it would need to cut prices on categories outside of food and consumables to bring down the amount of excess inventory it had on hand.
The company also announced some corporate layoffs as part of its cost-reduction measures. Walmart Inc. is cutting hundreds of corporate roles in a restructuring effort, according to people familiar with the matter, a week after the retail giant warned of falling profits.
The retailer began notifying employees in its Bentonville, Ark., headquarters and other corporate offices of the restructuring, which affects various departments including merchandising, global technology and real-estate teams, the people said. Around 200 jobs in total are being cut, said one of these people.
Analyst Opinions
According to the consensus estimate of Zacks, this world's largest retailer is expected to post quarterly earnings of $1.60 per share in its upcoming report, which represents a year-over-year change of -10.1%. Revenues are expected to be $151.41 billion, up 7.4% from the year-ago quarter.
Deutsche Bank cut the price target on Walmart Inc. from $166 to $142. However, Deutsche Bank analyst Krisztina Katai maintained the stock with a Buy rating.
Morgan Stanley has decided to maintain their Overweight rating on Walmart, which currently sits at a price target of $145.
Raymond James has decided to maintain their Outperform rating on Walmart, which currently sits at a price target of $140.
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