Wednesday, November 17, 2021

Walmart Shares Sink Despite Upbeat Q3 Print

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News shaping
the markets today

     

What’s happening: Shares of Walmart fell on Tuesday, despite the company reporting better-than-expected earnings for its third quarter.

What happened: Walmart boosted its annual guidance, projecting an increase in demand for toys and apparel in the all-important holiday season.

Shares of the retail giant remained under pressure on concerns surrounding supply chain issues impacting one of its key metrics during the quarter.

How were the results: The Bentonville, Arkansas-based company reported growth in sales and profits for the third quarter, with both metrics topping market views.

  • Sales rose 4.3% year-over-year to $140.53 billion, exceeding the consensus estimate of $135.60 billion.
  • Adjusted earnings came in at $1.45 per share, up 8.2% from the year-ago quarter, beating Street expectations of $1.40 per share.

Why it matters: Several big retailers have not been able to bring goods into the US ahead of the crucial holiday season due to raw material shortages, shipping issues and shuttered factories in some parts of Asia. Walmart, however, faced a limited impact from supply chain disruptions as the company chartered its own vessels for bringing products into the US ahead of time. The company’s inventory is higher by around 11.5% compared to last year, ahead of the busy seasonal sales period.

Although net sales at Walmart US grew 9.3% year-over-year in the third quarter, Walmart International’s sales contracted by 20.1%. Sam's club sales surged 19.7%. The company’s US comparable sales, excluding fuel, rose 9.2%, versus expectations of 7.04% growth.

“Our omnichannel focus is pushing digital penetration to record levels," said CEO Doug McMillon. "We gained market share in grocery in the U.S., and more customers and members are returning to our stores and clubs around the world."

Walmart’s operating margins came in at 4.1%, while operating income grew 0.2% to $5.8 billion for the quarter. However, consolidated gross margins declined by 42 basis points owing to higher supply chain costs.

The company reported cash and equivalents worth $16.1 billion as of October 31, 2021.

Management guided to adjusted earnings of $6.40 per share for fiscal 2022, versus their earlier forecast of between $6.20 and $6.35 per share. Walmart US comparable sales, excluding fuel, is expected to grow more than 6%. For the fourth quarter, the company projected US comparable sales growth of about 5%.

How shares responded: Walmart’s shares fell 2.6% to close at $143.17 on Tuesday, following the release of quarterly results. The stock has declined more than 2% year to date.

What to watch: Traders will keep an eye on the crucial holiday season in the US, with Walmart expected to report meaning sales growth.

The Markets Today

     

The British pound will be in focus today ahead of a basket of economic reports from the country.

Context: The sterling recorded gains on Tuesday, following the release of strong employment data from Britain.

Details: The Bank of England was forced to hold interest rates during its recent meeting due to fears of a slowdown in the country’s jobs market after the end of the furlough scheme. The GBP/USD forex pair recorded its biggest downturn in 14 months following the central bank’s decision.

However, employers in Britain hired more people during October, following the end of the government’s furlough scheme. The number of employees on company books increased by 160,000 to a record of 29.3 million in October. UK’s unemployment rate eased to 4.3%, while the number of employed people rose by 247,000 to 32.52 million in the three months to September. The robust data eased some concerns around the central bank keeping interest rates low for an extended period.

“Given the lack of evidence of a slowdown in today’s strong jobs data, the case for a December 15bp hike is now stronger, and markets are almost fully pricing in such a move,” ING analysts said in a note to clients.

However, overall gains in the GBP/USD forex pair remained limited after data showed US retail sales rising higher-than-expected in October. The sterling also remained under pressure due to concerns around the ongoing issues between the UK and the EU over Northern Ireland, which is expected to impact trade between the regions.

The GBP/USD gained around 0.1% to settle at 1.3429 on Tuesday, after hitting an 11-month low on Friday. The sterling also climbed around 0.5% versus the euro to 84.30 pence.

What to watch: Traders await data on inflation rate, producer prices and retail price index from the UK. The annual inflation rate in the UK, which declined to 3.1% in September, is expected to increase to 3.9% in October. Analysts expect the annual rate of output inflation to rise to 7.3% in October, from 6.7% in September. UK’s retail price index is projected to rise to 5.7% in October, from 4.9% in the previous month.

Markets will also keep an eye on any indication from the Bank of England around interest rate hikes.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.15%, 0.39% and 0.75%, respectively.

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What else to watch today

     

South Africa’s inflation rate and retail sales, Italy’s balance of trade, Eurozone’s construction output and inflation rate, America’s MBA mortgage applications, housing starts, building permits, crude oil inventories, gasoline inventories and distillate inventories, Canada’s inflation rate, Argentina’s leading economic index, as well as Russia's gross domestic product.