Walmart could post 7% increase in fourth-quarter net income

Walmart was seen as a “winner” in retail amid the pandemic of the past year and when the company reports fourth-quarter earnings on Thursday (Feb. 17). Net income is expected to rise 7% from the same period last year to $4.154 billion for the fiscal quarter ending Jan. 31.

Consensus revenue is expected to be $151.5 billion for the quarter, which would be 0.6% lower than a year ago in part because of the divestitures of businesses in the United Kingdom and Argentina. Analysts said the supply chain disruption, inflation and labor issues are likely to keep margins under pressure for the next couple of quarters. And while Walmart has scale on its side, analysts expect Walmart management to address the impact out-of-stocks and inflation have on revenue.

Simon Gutman, an analyst with Morgan Stanley, said Walmart+ membership has grown to an estimated 15 million subscribers, adding a net 1 million in the past quarter. Gutman said there continues to be considerable overlap with the Amazon Prime and Walmart+ subscribers. With a new price increase coming from Amazon Prime, Gutman said he will monitor to see what, if any, impact that might have on Walmart+ memberships.

“We expect Walmart to sustain recent momentum in its core business through this new year and see a growing ability to balance longer-term investments with near-term returns. Our ‘Overweight/Buy’ rating and $170 price target are underpinned by a preference for quality players with scale and defensive retailers as the market undergoes a mid-cycle transition,” Gutman noted. ]

Walmart is also looking to other revenue sources such as its advertising arm known as Walmart Connect, and it’s growing financial services partnerships and alliances designed to offer improved delivery and payment systems. During the third quarter of calendar 2021, the company launched a new demand-side platform in partnership with The Trade Desk to expand off-site media offerings. The company is witnessing rapid growth in advertising income worldwide led by the United States, Flipkart and Mexico. These moves bode well for the fourth quarter and beyond, noted analysts with Zacks.

Zacks Research also said Walmart has been gaining from its steady comp sales record, which is driven by its constant expansion efforts and stellar e-commerce performance. Zacks also said Walmart’s efforts to enhance merchandise assortments and the focus on store remodeling with advanced in-store and digital innovations should also be accretive to earnings.

Walmart management has forecast U.S. comp sales, excluding fuel, to be up about 5% for the fourth quarter. Market analysts are expecting comp sales could be higher fueled in part by inflation. Edward Yruma, an analyst with KeyBank Capital Markets, recently downgraded Walmart shares to a hold position noting more wage pressure this year along with other factors likely to pressure top-line sales revenue.

“Since our initiation, Walmart has undergone a transformation into arguably one of the strongest omnichannel U.S. retailers. However, we believe that the lack of stimulus tailwinds and continued inflationary pressure may disproportionately impact Walmart’s “middle of the middle’ U.S. consumer in the near term,” Yruma noted.

Ben Bienvenu, an analyst with Stephens Inc. has kept his “overweight” bullish rating on Walmart and is more aggressive on the quarterly earnings projections at $1.54 per share.

“The company has played offense on numerous fronts over the last few years, and we think Walmart is poised to leverage its scale, lead on price and take market share while delivering accelerated wearings growth as we move through this year,” Bienvenu noted in November.

Given that retail sales overall were strong during the holiday period, and Walmart went into the quarter with 11.5% more inventory, analysts expect a positive sales report for the quarter. The wildcards analysts are watching include the margin impact from inflationary prices on everything from breakfast cereal to canned soda and fresh beef and chicken. Also, the labor constraints and continued higher supply chain woes including the rising costs of containers and shipping delays remain a concern.

Walmart shares (NYSE: WMT) closed Monday at $133.95, down $1.38. During the past 52 weeks, the share price has ranged between $126.28 and $152.57. The share price is down 7.42% year-to-date.