News Today - Walmart Tops Earnings Estimates and $20 Billion Share Buyback

News Today - Walmart Tops Earnings Estimates and $20 Billion Share Buyback

News Today - Interesting tidbit with Walmart WMT Shares –2.94% soaring after the retail giant reported a better-than-expected third quarter and raised its fiscal year guidance. Shows buyers remain resilient amidst a tight macroeconomic environment.

Walmart (ticker code: WMT) posted adjusted earnings of $1.50 per share on revenue which increased 8.7% to $152.8 billion. Analysts expect the company to post adjusted earnings of $1.32 per share on earnings of $147.7 billion, according to FactSet.

Same-store sales grew by 8.2% year-over-year, beating expectations of 4.3%.

The company's new guidelines are more optimistic. Management expects net sales and comparable sales to grow by approximately 5.5%. Adjusted operating income will fall between 6.5% and 7.5%, better than the previous guidance which fell 9% to 11%. Adjusted earnings per share will fall between 6% and 7%.

Walmart also said it would buy back $20 billion of its stock.

Walmart shares rose 6.2% to $147.01 in premarket trading on Tuesday.

The likelihood that the company meets sales and earnings expectations is high, analysts said. Value retailers such as Walmart have become increasingly popular with shoppers as inflation nears a four-decade high, helping companies grow market share and drive sales growth.

Even high-income shoppers are starting to shop at Walmart more frequently, executives said during the company's second-quarter earnings call.

That's gotten Walmart into something of a "safety game" over the past year, writes RBC Capital Markets analyst Steven Shemesh. The stock is down just 3.6% this year, beating the S&P 500's 17% drop.

"Consumers are definitely leaning on these staple retailers to stretch their budgets," agreed UBS analyst Michael Lasser, writing in a research note in early November. “WMT is perfect for this environment.”

How safe Walmart will be for the rest of the year remains a big question for investors—one the company's guidance can answer. Walmart slashed its profit outlook for the fiscal year in July, painting a dismal picture of consumer health and sending shockwaves through markets.

Investors grew more optimistic in August, after the company posted better-than-expected second-quarter earnings and slightly improved its full-year earnings outlook.

Wall Street will be satisfied if the company is able to maintain its current outlook, which calls for earnings per share to fall between 9% and 11%. That said, if management were to lower the guidance, it could rock the market again, as that would indicate that consumers are in a more shaky financial state than expected.

In addition to the outlook, investors will focus on management's comments regarding inventory levels. Walmart has seen increased inventory since the end of the first quarter, which has hit margins and gross profit.

Executives indicated it would take several quarters to rebalance inventory levels, so any progress on this issue would be received positively by investors.

"The market will want to see continued progress on inventory to get comfortable with the gross margin outlook in 4Q," wrote Citi analyst Paul Lejuez. “If inventories are high, it is important to know if there will be a negative impact on gross margins in Q4 and/or into [the first half of 2023].”

However, until the company clears all of its inventory, gross margins could continue to take a hit, a possibility many analysts have factored into their forecasts.

UBS's Lasser and RBC's Shemesh both predict gross margins will fall 0.75 percentage point in the third quarter.