ii view: value at Walmart after profit upgrade

Shares in this giant retailer have comfortably outperformed the Dow Jones index year-to-date. We assess prospects.

19th November 2024 16:03

Keith Bowman from interactive investor

Third-quarter results to 30 October

Revenue up 5.5% to $169.6 billion
Operating income up 8.2% to $6.7 billion
Adjusted Earnings Per Share (EPS) up 13.7% to $0.58 per share

Guidance:

Now expects full-year sales to grow between 4.8% and 5.1%, up from a previous 3.75% to 4.75%
Now expects full-year adjusted EPS of between $2.42 and $2.47, up from a previous $2.35 to $2.43

Chief executive Doug McMillon said:

“We had a strong quarter, continuing our momentum. Our associates are working hard to save people time and money and to transform our business. In the US, in-store volumes grew, pickup from store grew faster, and delivery from store grew even faster than that. Our teams are executing and delighting our customers and members with the value and convenience they expect from Walmart.”

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ii round-up:

Retail giant Walmart Inc (NYSE:WMT) today increased annual sales and earnings forecasts as consumers continued to seek value.

The Arkansas headquartered company now expects full-year sales growth of between 4.8% and 5.1%, up from a previous 3.75% to 4.75%. That’s now expected to fuel full-year adjusted earnings of between $2.42 and $2.47 per share, up from a prior forecast of $2.35 to $2.43.

Shares in the Dow Jones company rose 4% in US trading having come into these latest results already up 60% year-to-date. That’s ahead of a 33% gain for online giant Amazon.com Inc (NASDAQ:AMZN). The Dow index itself is up 15% in 2024.

Walmart operates more than 10,500 stores and numerous eCommerce websites in 19 countries. Sales for the third quarter to 31 October rose 5.5% year-over-year to $169.6 billion, beating Wall Street estimates of $167.7 billion.

Earnings per share climbed 13.7% to $0.58 per share from a year ago, exceeding analyst forecasts of $0.53 per share. Driven by the core US business, a profit margin of 24.2% was up from 24% in Q3 2023.

Online sales globally rose 27%, helped by store-fulfilled pickups as well as deliveries. E-commerce sales for Walmart in the US gained 22%, with those overseas climbing 43%.

Shareholder returns remained unchanged from the prior second quarter, with $1.7 billion paid in dividends and $1 returned via share buybacks.

Fourth-quarter and full-year results are likely to be announced mid-February.

ii view:

Started in 1962, Walmart today employs around 2.1 million people. As well as Walmart branded stores across the US and Canada, it also owns and operates Sam's Club warehouse outlets. Walmart US outlets generated its biggest slug of revenues at 68% during this latest quarter, with Sam’s Club at 14% and operations overseas 18%.

For investors, the uncertain economic outlook cannot be overlooked. Competition across the retail industry is intense, with competitors such as Costco Wholesale Corp (NASDAQ:COST) and Dollar General Corp (NYSE:DG) fighting hard. A forecast one-year price/earnings (PE) ratio above the 10-year average may suggest the shares are not obviously cheap, while a forecast dividend yield of 1% is less than fellow retailers Target and Home Depot at over 2%.

On the upside, a diversity of product and geographical region exists. E-commerce sales are growing. Net debt of $37 billion at the end of this latest quarter compared to a stock market value of over $600 billion points to a strong balance sheet, while the dividend has grown consecutively for more than the last eight years.

On balance, and given a focus on value offerings in tough times for consumers, this giant of the retail industry continues to justify its place in diversified investor portfolios.

Positives:

Continued share buybacks
Focus on costs

Negatives:

Uncertain economic outlook
Subject to currency moves

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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