Walmart’s stock reverses early losses as analysts welcome market-share growth in grocery

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Walmart Inc.’s stock reversed early losses Tuesday, after the retailing giant beat fourth-quarter earnings estimates and raised its dividend but offered weaker-than-expected guidance for the first quarter and for fiscal 2024.

The stock was last up 0.6% after falling more than 4% in premarket trading, with analysts homing in on rising market share in grocery, a key segment.

An increase of 8%-plus in same-store sales in the U.S. was “a testament to the company’s strong positioning in the present environment,” Jefferies analysts said.

“While gross margin was down due to markdowns and mix, we encourage investors to focus on the fact that Walmart is gaining market share, which we believe is of material importance,” analysts led by Corey Tarlowe wrote in a note to Jefferies clients. “Although the fiscal-year outlook is below expectations, we see substantial opportunity for Walmart to outperform ahead.”

Jefferies reiterated its buy rating on the stock.

Bentonville, Ark.–based Walmart posted net income of $6.275 billion, or $2.32 a share, for the quarter ending Jan. 31, up from $3.562 billion, or $1.28 a share, in the same period of the previous year. Adjusted per-share earnings came to $1.71, ahead of the $1.52 FactSet consensus.

Revenue rose to $164.048 billion from $152.781 billion, also ahead of the FactSet consensus of $159.759 billion.

U.S. same-store sales rose 8.3%, bettering the 8.2% FactSet consensus. E-commerce sales rose 17%, and the company continued to grow market share in the grocery category.

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Chief Executive Doug McMillon said the company “acted quickly and aggressively to address the inventory and cost challenges” that it faced last year.

“We built momentum in the third quarter and that continues,” he said in a statement. “We are well-positioned to start this fiscal year.”

On a call with analysts, McMillon said the company was attracting higher-income customers who are also responding to the inflationary environment.

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“We’re gaining share across income cohorts including at the higher end, which made up nearly half of the gains we saw in the U.S. again this quarter,” he said, according to a FactSet transcript. “And we’re also capturing a greater share of wallet at Sam’s Club in the U.S. with both mid and higher income shoppers.”

E-commerce now accounts for $80 billion in annual sales, equal to 13% of overall sales. The company also enjoyed strong holiday sales on Singles Day (Nov. 11) and from Thanksgiving through Christmas.

“We ended the quarter with inventory about flat to last year which is better than we anticipated and even better when you consider how inflation lifts that number,” he said, according to a FactSet transcript.

The company is now expecting first-quarter adjusted earnings per share of $1.25 to $1.30, below the FactSet consensus of $1.37. For the full year, it expects adjusted per-share earnings of $5.90 to $6.05, also below the $6.53 FactSet consensus.

Chief Financial Officer John David Rainey said the company is in a similar position as in the last three years, with a great deal of uncertainty about the bigger picture.

“While the supply-chain issues have largely abated, prices are still high and there is considerable pressure on the consumer,” he told analysts. “Attempting to predict with precision the swings in macroeconomic conditions and their effect on consumer behavior is challenging. As such, our guidance reflects a cautious outlook on the macro environment but at the same time our excitement about our recent results, momentum in all segments, and progress on our strategy both for this year and the years that follow.”

Stifel analysts called the quarterly Walmart numbers “solid” and said that the weak guidance was expected by the buy side. Stifel has a hold rating on the stock.

Separately, the Walmart board approved a 2% increase in its quarterly dividend, to 57 cents a share, with the new dividend payable on April 30 to shareholders of record as of March 17.

The stock has gained 7% in the last 12 months, while the S&P 500 has fallen 6%.

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