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As
Walmart gears up to report its first-quarter earnings on
Thursday, Americans continue to spend heavily online, driven by
demand for cheaper products. Known for its bargain-priced
merchandise, Walmart is facing especially stiff price
competition online from Amazon and newcomers like PDD Group's
Temu in key categories such as personal care products, clothing
and electronics.
Walmart's stock has climbed 15% so far in 2024, better than the
S&P 500's 9% rise, increasing pressure on the company to provide
strong results. Shares of Walmart recently traded at about 25
times expected earnings, up from a 10-year average valuation of
about 20, suggesting investors expect strong profit growth,
according to LSEG data.
Wall Street anticipates Walmart to report nearly 6% growth in
net income for its first quarter ending April 30, per LSEG.
Earnings per share are expected to hit 52 cents, the top end of
Walmart's forecast provided in February.
But those expectations come as Walmart contends with higher than
average inventories. General merchandise, a crucial category for
Walmart, generated $114 billion in sales or a quarter of its
total revenues in the year ended January 2024.
Walmart replenished its inventories at a slower rate than some
of its peers, according to LSEG data for the fiscal quarter
ended January 31. Both Kroger and Costco showed better inventory
turnover than Walmart, according to LSEG data for their latest
fiscal quarters. High inventory levels potentially raise
Walmart's costs, jeopardizing its profit margins.
In February, Walmart said its inventory was in "great shape" and
that it felt good about its position as it began the new fiscal
year.
Americans' spending intentions remain weak compared to 2021, at
least for non-essential, discretionary merchandise like
clothing, according to Deloitte, which conducted surveys to
measure demand.
B. Riley Wealth's chief market strategist Art Hogan said he
expects Walmart's shares to trend higher if it beats revenue and
earnings estimates on Thursday.
"Walmart has more tailwinds than headwinds and there is room for
the stock to grow," said Hogan. He owns Walmart shares as an
individual, though his firm does not hold shares.
(Reporting by Siddharth Cavale in New York; Editing by Nick
Zieminski)
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