18 August 2021

Walmart Lifts Outlook After Profit Beat

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News shaping
the markets today

     

What’s happening: Walmart reported upbeat results for its second quarter on Tuesday and raised its guidance for the year.

What happened: The big-box retailer witnessed higher demand last quarter, with customers coming out of their homes to shop for clothes and back-to-school products.

However, Walmart reported a slowdown in certain key metrics, raising concerns around its ability to continue the upward momentum in the coming period.

How were the results: The Bentonville, Arkansas-based retailer reported growth in sales for the second quarter, with both top- and bottom-line metrics beating Street estimates.

  • Total quarterly revenues grew 2.4% to $141.05 billion, exceeding the consensus estimate of $137.17 billion.
  • Adjusted earnings came in at $1.78 per share, easily surpassing market views of $1.57 per share.

Why it matters: Walmart recorded growth in grocery sales in the quarter and a spike in Sam’s Club members to a new high. The company also reported better-than-expected growth in same-store sales, driven by the back-to-school shopping season. The retailer’s latest results were also supported by stimulus checks and advance child tax credits provided by the US government.

Walmart’s same-store sales excluding fuel grew 5.2% in the second quarter, ahead of Street expectations of 3.7%.

“Our global ecommerce sales are on track to reach $75 billion by the end of the year, further strengthening our position as a leader in omnichannel,” CEO Doug McMillon said during the earnings call.

For fiscal 2022, management raised its US same-store sales guidance from the earlier low single-digit growth to between 5% and 6% growth. Walmart also guided to FY22 earnings of between $6.20 and $6.35 per share, above the consensus estimate of $6.02 per share.

Walmart witnessed a deceleration in online sales growth to 6% in the second quarter, from the 37% recorded in the prior three-month period. Investors were also concerned about the decline in the company’s profit margins last quarter amid higher supply chain costs.

How shares responded: Shares of Walmart closed almost flat at $150.70 on Tuesday after the release of quarterly results. The stock has added around 3% year to date, significantly below the S&P 500’s 20% gains.

What to watch: Investors will continue to monitor supply chain disruptions and the spread of the Delta variant of covid-19. Despite a decline in pandemic-related expenses, Walmart is witnessing an increase in labour and transportation costs. Markets will keep an eye on whether the company is able to manage these costs with higher product prices or takes a hit on its bottom line.

The Markets Today

     

US stocks will be in focus today ahead of the release of Federal Reserve meeting minutes.

Context: US stocks fell on Tuesday, with the Dow Jones and S&P 500 ending their five-session winning streaks.

Details: The US released mixed economic reports on Tuesday, raising concerns around an uneven economic rebound.

Although retail sales fell 1.1% in July, following 0.7% growth in June, another report showed a higher-than-expected rise in industrial output. The NAHB housing market index declined to 75 in August, while business inventories grew 0.8% in June.

Weak economic reports from China released on Monday and a rise in covid-19 cases also dampened market sentiment.

“When we’re looking at the expectations for consumer strength going forward, some of the edge is being taken off by the rise in the delta variant,” BMO Wealth Management analyst Yung-Yu Ma said in a note to clients.

Disappointing US same-store sales reported by Home Depot also impacted overall investor sentiment. The company’s shares tumbled 4.3% following the release of results. Shares of big tech companies, including Google-owner Alphabet, Apple, Amazon, Microsoft
and Facebook, all closed lower on Tuesday.

The blue-chip Dow and S&P 500 had settled at fresh highs on Monday. Some profit taking also contributed to the losses recorded on Tuesday. The Dow Jones index shed 282.12 points to close at 35,343.28, while the S&P 500 declined 0.7% to reach 4,448.08 and the Nasdaq 100 fell by 0.91% to settle at 15,002.83.

What to watch: Traders await the release of minutes from the FOMC’s meeting, which are expected to provide some insight into the central bank’s plans around its monetary policy and asset purchases.

Markets also await data on housing starts and building permits from the US. Housing starts, which surged 6.3% to an annual rate of 1.643 million in June, are expected to decline by 2.6% in July. Building permits are projected to rise 1% in July.

Other Markets: European trading indices closed mixed on Tuesday, with the FTSE 100 and STOXX Europe 600 up 0.38% and 0.07%, respectively, and the German DAX 30 and French 40 declining by 0.02% and 0.28%.

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What else to watch today

     

UK’s inflation rate, retail price inflation and producer prices, South Africa's consumer price inflation rate and retail sales, Eurozone’s construction output and inflation rate, America’s MBA mortgage applications and crude oil inventories, Canada’s inflation rate, as well as Russia’s producer prices.

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