19 February 2021

Walmart Shares Slide Despite Sales Beat

Tags

News shaping
the markets today

     

What’s happening: Shares of Walmart nosedived on Thursday, despite the big-box retailer exceeding sales estimates for the fourth quarter.

What happened: Walmart witnessed a blockbuster year in 2020, with a strong rise in demand for essentials, as people stockpiled necessary goods amid pandemic-led lockdowns.

Despite the world's biggest retailer recording 69% online sales growth and exceeding revenue expectations, profits for the fourth quarter disappointed. Investors were also concerned about management’s guidance for the current fiscal year.

How were the results: The Bentonville, Arkansas-based company reported record revenues for the fourth quarter but earnings fell short of expectations.

  • Revenues came in at $152.1 billion, a 7.3% rise from the year-ago quarter, surpassing Wall Street expectations of $148 billion.
  • Operating income grew 3.1% to $5.49 billion.
  • Adjusted earnings came in at $1.39 per share, missing the consensus estimate of $1.51 per share.

Why it matters: Walmart experienced an increase in demand for electronics and toys due to an early start to the holiday season and the injection of massive stimulus money.

Same-store sales grew 8.6%, exceeding the consensus estimate of 5.6% growth. The retailer’s online sales growth of 69% blew past the 35% growth in the year-ago quarter. However, this represented a slowdown from the whopping 79% growth reported for the third quarter.

Walmart also announced plans for raising wages, which will benefit around 425,000 employees in the ecommerce, online pickup, and delivery roles. The company employs around 1.5 million people in the US alone. The decision to raise wages came after President Joe Biden called to slowly increase the federal minimum wages to $15 an hour. Walmart’s shares have historically responded negatively to wage hikes.

The company increased its quarterly dividend from 54 cents per share to 55 cents per share, while announcing a $20 billion in share buyback authorisation.

Investors were concerned with Walmart’s projection of a slowdown in its adjusted net sales growth to the low single digits, from 8.5% in the preceding year. The company also guided to earnings growth of flat-to-slightly up, versus the consensus estimate of 2.2% growth.

“The guidance that we're going to give this morning really doesn't include any material stimulus because we just don't know what will happen. If we get more stimulus certainly that's a tailwind for us,” CFO Brett Biggs said.

How shares responded: Shares of Walmart plummeted 6.5% to close at $137.66 on Thursday, following the release of mixed quarterly results. The company’s shares edged higher by merely 0.1% in after-hours trading. The stock has lost more than 6% in the past three months.

What to watch: With the retailer planning to spend billions of dollars on worker wages, automation and other digital technology, investors expect Walmart’s sales growth to ramp. All eyes will also be on Walmart’s bottom line, as the company increases its capex and opex.

Markets will also monitor the sale of the company’s British unit Asda, which awaits approval from the authorities.

The Markets Today

     

European stocks will be in focus today, ahead of a basket of economic reports from the region.

Context: European stocks settled lower on Thursday, as investors assessed earnings from some major companies in the region and the jobless claims data from the US.

Details: Some big names in the Eurozone released earnings reports on Thursday. Credit Suisse reported a net loss for the fourth quarter amid higher provisions, while Barclays posted a profit for the full year due to a 22% increase in its investment banking income.

Although Airbus recorded an operating loss of €510 million for the full year, the company restored its business projections after cash generation during the final quarter of 2020.

Other companies reporting results yesterday included Nestle, Air France KLM, Carrefour, and Orange.

Markets were disappointed with America’s jobless claims data. The US Labor Department an increase in initial jobless claims of 861,000 last week, the highest level in around a month.

The pan-European Stoxx 600 index fell 0.8%, with oil and gas stocks leading the losses on Thursday. Most sectors closed in negative territory.

London’s FTSE 100 fell 1.4%, while the German DAX 30 and French 40 recorded losses of 0.16% and 0.65%, respectively.

What to watch: Markets await data on manufacturing PMI, services PMI, composite PMI, and current account from the Eurozone. The IHS Markit Eurozone manufacturing PMI is expected to decline to 54.3 in February, from 54.8 in January, while the services index is projected to rise to 45.9, from 45.4 in the previous month. Composite PMI is also likely to increase slightly to 48 in February, from the previous reading of 47.8.

Rising covid-19 cases remain a top concern for investors, with total infections surpassing 110.2 million globally.

Other Markets: US indices closed lower on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.38%, 0.44% and 0.45% respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s producer prices, manufacturing PMI, services PMI and composite PMI, UK’s retail sales, manufacturing PMI, services PMI, composite PMI and CBI industrial trends orders, France’s inflation rate, manufacturing PMI, services PMI and composite PMI, Italy’s inflation rate, construction output and current account, Spain’s balance of trade, India’s foreign exchange reserves, Brazil's federal tax revenue and industrial entrepreneur confidence index, Canada’s retail sales as well as the US manufacturing PMI, services PMI, composite PMI, existing home sales and Baker Hughes crude oil rigs.

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.