Walmart expected to post lower net income and gains in e-commerce sales

Walmart is often seen as a pillar in a tough economy because it has the scale and resources to handle shrinking margins. That’s mainly why stock analysts expect Walmart to report quarterly net profit of $4.19 billion on May 17 on slight declines in net margins.

Net profit is estimated to be 13% lower than a year ago due to divestments. Revenue is forecast at $128.8 billion, down an estimated $10 billion due to business divestitures in the UK, Japan and Argentina. Revenue from Walmart’s international segment is forecast at $25.5 billion, down 6.5% year-over-year, with a 7.4% negative impact from currency exchange rates.

U.S. mockup sales are expected to grow 2%, down from 6% growth a year ago. Sam’s Club is expected to record sales of 6.1%, compared to 7.2% a year ago. Walmart’s gross margins are under pressure due to rising labor costs, rising transportation costs and inflation. Analysts expect gross margins of 24.2% for the quarter, up from 24.7% a year ago. Net margins are expected at 3%, compared to 3.4% in the same quarter last year.

“Walmart has demonstrated its ability to temper gross margin contraction in recent quarters through improved merchandise mix and strategic sourcing, but the first quarter represents the most challenging comparison of the year. We expect management to continue to improve e-commerce profitability, supporting sustainably higher margin rates,” noted Ben Bienvenu, analyst at Stephens Inc. (Stephens leads investment banking for Walmart and is remunerated accordingly.)

Walmart’s e-commerce business is expected to contribute 1.2% to comparison store sales growth for the US segment. Market watchers predict that e-commerce sales in the United States will grow 10% from a year ago. Sam’s Club is expected to experience 35% e-commerce growth from a year ago. E-commerce is expected to contribute 3.2% to the segment’s comp sales growth.

Walmart continues to seek improvements in the profitability of its e-commerce business and develop other revenue streams from its in-house advertising business, last-mile delivery platform and service offerings. health and finance.

Welcome is a bit more bullish on Walmart than the broader analyst consensus. Its earnings forecast is 2.7% above consensus and it maintains an “overweight” or buy rating on the retail giant’s stock.

“In a persistently high inflationary environment, we continue to view Walmart shares as an attractive value, given the company’s position as the largest EDLP (daily low prices) retailer. We believe the current operating environment plays a role in Walmart’s strength, which should help it outperform its peers Walmart has often been called an “inflation fighter” because the company’s scale allows it to fend off suppliers for mitigate price increases. While there are certainly limits to this, and we don’t expect the company to price irrationally, we believe that Walmart’s relative price differential will be a appealing appeal to consumers who are feeling inflationary pains in their wallets,” Bienvenu said on Thursday.

He also appreciates Walmart’s ability to generate incremental revenue in e-commerce, advertising and healthcare. Bienvenu has a target price of $170, which has 14% upside potential for the $149.10 level of Walmart (NYSE:WMT) shares trading Thursday. Shares of Walmart are up 3.21% year-to-date after falling more than 7% after the market began to sell off in late April.

Market watchers will also be looking for commentary on consumer behavior in Walmart’s earnings report, as the retail titan serves 230 million customers a week across its global operations.

“Consumers have benefited little from higher prices in 2022 as many CPG companies have implemented multiple price increases to try to offset high transportation, raw material and labor costs. work. As consumers seek value and try to further increase their paycheck, Walmart is well positioned to benefit from increased in-store traffic,” Bienvenu noted.

Not all analysts are bullish on Walmart amid the current economic challenges. KeyBank Capital Markets analysts recently downgraded their buy rating for Walmart shares to neutral. KeyBank analyst Edward Yruma expects Walmart to see wage pressure and other factors putting pressure on sales.

“In recent years, Walmart has transformed itself into one of the strongest
US omnichannel retailers. However, we believe the lack of stimulus and continued inflationary pressure could disproportionately impact Walmart’s average U.S. consumer in the near term,” Yruma noted recently.