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News

Walmart shares spike after Q2 beat

 

Wednesday, August 17, 2022, 8.45am GMT

The news shaping the markets today

The Russian embassy again threatened the US with a direct military clash between the nuclear states. Despite this, the safe-haven US dollar index eased slightly this morning.


The Reserve Bank of New Zealand increased its official cash rate by 50 bps to 3.0% at its August meeting. This was the central bank’s fourth half-point rate hike, which lent further support to the NZD/USD forex pair.


Australia’s Westpac-Melbourne Institute Leading Economic Index fell by 0.2% year-over-year in July, which sent the AUD/USD pair lower in forex trading this morning.


The American Petroleum Institute reported a decline in crude stockpiles of 0.448 million barrels for the week ended August 12, following an increase of 2.156 million barrels a week ago. WTI crude oil futures traded higher on the news.


Japan’s Reuters Tankan sentiment index for manufacturers rose to 13 in August, from 9 in the previous month. The index surging to the highest level in seven months lent support to the JPY/USD forex pair.

 

What’s happening: Shares of Walmart gained on Tuesday, after the company reported upbeat results for its second quarter.

What happened: In July, Walmart had trimmed its profit outlook, raising concerns of a broader economic slowdown.

However, the company managed to beat market estimates, resulting in the stock climbing by the steepest in around two years.

How were the results: The Bentonville, Arkansas-based company reported growth in quarterly sales, with both top-and bottom-line metrics surpassing market views.

  • Revenues climbed 8.4% year-over-year to $152.86 billion, beating Street expectations of $150.75 billion.
  • Adjusted earnings slipped to $1.77 per share, from $1.78 per share last year, but still topped the consensus estimate of $1.62 per share.

Why it matters: Walmart, on July 25, lowered its guidance for the second quarter and full fiscal year. The company, at that time, said consolidated net sales growth is likely to be around 7.5% for the second quarter, with adjusted earnings seen dropping between 8% and 9% in the quarter.

Walmart reduced prices on clothing and other merchandise and cancelled orders worth billions of dollars to clear inventory, which was valued at over $61 billion at the close of the first quarter. Walmart’s inventory grew 25% year-over-year to $59.9 billion at the end of the second quarter, but the rate was slower than the 32% growth recorded in the first quarter.

Sales were boosted towards the end of the second quarter due to back-to-school shopping. Net sales from Walmart US rose 7.1% from a year ago, while sales at Walmart International and Sam’s Club gained 5.7%, and 17.5%, respectively. Excluding fuel, US comp sales climbed 6.5% in the quarter and surged 11.7% on a two-year stack.

The company’s operating income fell 6.8% to $6.9 billion, with operating margins coming in at 4.5%. “The actions we’ve taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery put pressure on the profit margin for Q2 and our outlook for the year,” CEO Doug McMillon said during the earnings call.

Management projected 5% growth in net sales and adjusted earnings to decline 9%-11%, to reflect a negative impact by currency fluctuations of around $1.3 billion. For fiscal 2023, management guided to around 4.5% growth in consolidated net sales, with a 9%-11% decline in adjusted earnings. Excluding divestitures, adjusted earnings are seen declining by 8%-10%.

How shares responded: Walmart’s shares surged as much as 6.2% to record its biggest intraday gain since September 1, 2020. The stock ended the trading day 5.1% higher at $139.37 on Tuesday. The company’s shares have gained around 8% over the past month.

What to watch: Investors will monitor the recently signed streaming deal between Walmart+ and Paramount Global, which could boost the company’s overall results ahead.

The markets today

European stocks will be in focus today ahead of a couple of major economic reports from the common bloc

Context: European markets closed slightly higher on Tuesday, extending gains for the fifth straight session.

Details: Traders assessed the release of earnings reports on Tuesday. BHP Group reported higher-than-expected growth in annual earnings amid rising prices of coal and other commodities. Delivery Hero’s shares also gained more than 5%, after the German company issued an optimistic forecast for the third quarter.

However, Sonova’s stock fell to the bottom of the Stoxx 600 index on Tuesday, after the company released its financial results and revised its forecast for the year.

Investor sentiment remained elevated despite some negative economic data. Germany’s ZEW indicator of economic sentiment declined to -55.3 in August, from -53.8 in the previous month, representing the weakest reading since October 2008. However, the German DAX 40 rose 0.68% to close at 13,910.12 on Tuesday.

UK’s real wages declined by an annual 3% last quarter, while average pay, excluding bonus payments, rose 4.7% in the April to June quarter. UK’s unemployment rate came in at 3.8% in the second quarter. London’s FTSE 100 rose 0.36% to settle at 7,536.06, the highest level since June 8.

The pan-European Stoxx 600 index rose 0.16% to close at 443.07 on Tuesday, with basic resources leading the gains. However, healthcare stocks bucked the overall market trend, declining around 0.6%.

What to watch: Traders await the release of economic reports on employment change and GDP growth rate from the Eurozone today. The number of employed persons in the Eurozone, which rose by 0.6% to 162.9 million during the first three months of the year, is expected to rise by 0.5% in the second quarter. Analysts project Eurozone’s economic growth at 4% year-over-year for the second quarter, following a 5.4% expansion in the prior period.

Other Markets: US indices closed mixed on Tuesday, with the Dow Jones index and S&P 500 up by 0.71% and 0.19%, respectively, and the Nasdaq 100 down by 0.23%.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0169 and 1.0175 Positive
USD/JPY – 134.09 and 134.20 Negative
Silver – 20.053 and 20.086 Negative
Copper – 3.6164 and 3.6332 Negative
Nasdaq 100 – 13619.24 and 13657.48 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0174, 0.00%) Dow ($34,121, 0.01%) Brent ($92.81, 0.5%)
GBP/USD (1.2107, 0.07%) S&P500 ($4,306, -0.03%) WTI ($87.12, 0.7%)
USD/JPY (134.16, -0.05%) Nasdaq ($13,642, -0.12%) Gold ($1,791, 0.1%)

What else to watch today

UK’s inflation rate, retail price index, producer prices change and input producer prices, Turkey’s total motor vehicles production, South Africa’s retail trade, US MBA mortgage applications, retail sales, business inventories, crude oil inventories, gasoline stocks, distillate stockpiles and FOMC minutes, Russia’s producer prices, as well as China’s foreign direct investment.

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