Walmart shares fall on earnings miss, full year net income falls 9.2%

Walmart disappointed the equity markets Thursday (Feb. 18) with a 12-cent per share earnings miss in the fourth quarter, despite record revenue and strong same-store sales. Fourth-quarter earnings on an adjusted basis were $1.39 per share, lower than the $1.51 consensus estimate.

The global retailer posted a net income loss of $2.091 billion in the fourth quarter primarily because of accounting charges related to the sale of assets and operations in Argentina, Japan, and the United Kingdom. The company posted net income of $4.141 billion in the fiscal fourth quarter of 2019.

Walmart shares (NYSE: WMT) tumbled more than 5% to $139 in early trading primarily because of weaker guidance for the year as the retail giant will raise hourly wages for 425,000 workers to more than $15, and spend more money in supply chain capabilities to support online sales. For the past 52 weeks shares have traded between $102 to $153.66. Over the past year, Walmart shares have risen 15.9%.

Revenue in the fourth quarter was a record $152.079 billion, up 7.3% as U.S. same-store sales rose 8.6% with a 69% spike in e-commerce sales. Sam’s Club also reported robust comp sales in the quarter, up 10.8% with e-commerce sales rising 42%. Revenue for the quarter was $16.5 billion, up 8.1%. Membership income rose 12.9% in the quarter, the strongest increase in six years. Walmart said its international division had sales of $34.9 billion in the quarter, up 5.5%, with positive comp sales in Mexico, China and Canada.

Walmart reported full year record revenue of $559.151 billion, up 6.7% or $35.2 billion. Net income for the year was $13.51 billion, down from $14.881 billion in the previous fiscal year. Adjusted earnings per share totaled $5.48, less than the $5.60 consensus estimate.

Walmart said it incurred $1 billion in COVID-related costs in the fourth quarter and $4 billion for the year. Given the uncertainty in the economy related to more federal stimulus, vaccine rollout and effectiveness against COVID-19, Walmart forecast earnings to be down slightly this year. The company plans to invest $14 billion in supply chain, automation and customer support.

Walmart CEO Doug McMillon said the annual results were strong given the challenges the year presented with supply chain issues, reduced store hours and increased COVID-19 costs. He thanked frontline workers who served customers during a busy holiday amid the pandemic.

“Change in retail accelerated in 2020. The capabilities we’ve built in previous years put us ahead, and we’re going to stay ahead. Our business is strong, and we’re making it even stronger with targeted investments to accelerate growth, including raises for 425,000 associates in frontline roles driving the customer experience. This is a time to be even more aggressive because of the opportunity we see in front of us,” McMillon said. “The strategy, team and capabilities are in place. We have momentum with customers, and our financial position is strong.”

Stephens Inc. analyst Ben Bienvenu said Walmart is navigating uncertain times well and he remains a buyer of the stock despite the earnings miss. He said the stock would sell off on Thursday because of the lower earnings forecast, but he likes that Walmart continues to make progress on its long term pivot toward e-commerce. Stephens remains overweight on Walmart shares but the target price is under review.