Walmart shares are down. Bad Guidance Stronger Earnings, Dividend Increases

Walmart shares fell in Tuesday trading after the world’s largest retailer disappointed after guidance for fiscal 2024.

Walmart (ticker: WMT ) posted fourth-quarter adjusted earnings of $1.71 per share, topping estimates of $1.52. Revenue was $164 billion, up from $159.7 billion, according to FactSet.

US same-store sales, an industry metric tracking revenue at stores open more than a year, rose 8.3%, beating forecasts for a 4.9% increase.

Walmart said its board increased its annual cash dividend to $2.28 per share, and 57 cents per share on a quarterly basis, up from $2.24 on a year-over-year basis, and 56 cents on a quarterly basis.

Despite the fourth-quarter beat and higher dividend, Walmart’s shares are about 1.3% lower in Tuesday trading. For fiscal 2024, Walmart forecasts adjusted earnings of $5.90 to $6.05 per share, according to FactSet. The company said net sales will grow 2.5% to 3%.

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“Although supply-chain issues have largely eased, prices are still high and there is considerable pressure on consumers,” Chief Financial Officer John David Rainey said on a call with investors. “Our guidance reflects a cautious outlook on the macro environment,” he added.

Some of the factors weighing on next year’s earnings include higher tax rates and interest expenses. Because of an inventory accounting practice known as “last in, first out,” or LIFO, Walmart sees operating income decrease by 1%. as Baron’s As mentioned earlier, in an inflationary environment, recently purchased, high-cost items will hit profits.

First quarter guidance was also muted. The company said earnings per share would be between $1.25 and $1.30, compared with analysts’ expectations of $1.37. LIFO will be an issue in the first quarter as well. Walmart forecast that operating income would decline by 2.34 percentage points, or 3 cents per share, due to the accounting method.

“Some of this may be because the relatively new CFO wants to set a lower bar, which we suggested would happen in our earnings preview,” DA Davidson analyst Michael Baker wrote in a research note. “But as WMT has already announced increases in their pay structure, we believe some cost pressures, including wage pressures, may be a cause for concern.” He rates Walmart stock a Buy with a $172.99 price target.

In early January, Walmart said it would raise starting wages for U.S. associates to $14 an hour, up from $12, bringing the average wage to more than $17.50 an hour.

Rainey said on Tuesday that a silver lining is that Walmart is seeing gross margins grow this year, even if it doesn’t return to fiscal 2022 levels. Margins will benefit from lower supply-chain costs and more balanced inventory levels. For example, fourth-quarter margins fell by 0.83 percentage points, compared to a contraction of 0.89 in the third quarter.

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Another positive was the growth seen at Sam’s Club, with comparable-store sales up 12.2% year over year and 22.6% on a two-year basis. Membership revenue rose 7.1%, with members reaching an all-time high. Earlier this year, Walmart said it would open 30 new Sam’s Clubs across the U.S. in response to strong growth trends.

It’s no surprise that Walmart’s fourth-quarter earnings were a hit, given the company’s strong year. Total revenue rose 6.7% to $611.3 billion in fiscal 2023, which ended Jan. 27. Same-store sales grew 6.6%, while the company posted adjusted earnings per share of $6.29. Analysts had forecast sales of $606.6 billion and earnings per share of $6.09.

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Write to Sabrina Escobar at [email protected]

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