Walmart expected to benefit from consumer spending, diverse revenue streams

All eyes will be on Walmart Nov. 16 when the retail giant reports third-quarter earnings and commentary that provides insight into broad national consumer behavior and spending patterns – especially going into the holiday cycle.

The Bentonville-based retailer is expected to post earnings per share of $1.51, or net income of $4.064 billion, for the third quarter ending Oct. 31. Net earnings are expected to increase 0.7% from a year ago.

Revenue is forecast at $159.18 billion, up 4.2% year over year, according to consensus estimates. Market watchers are largely bullish on Walmart’s ability to beat estimates as the company has done for the past five consecutive quarters. Last quarter, Walmart forecast earnings guidance between $1.45 to $1.50 per share on an adjusted basis with revenue growth between 4% and 4.5%.

Analysts expect U.S. sales revenue of $107.981 billion, up 3.1% from a year ago in the quarter. International sales are expected at $27.839 billion, up 10% from a year ago. Sam’s Club sales, excluding membership revenue, are forecast at $22.144 billion, up 3.5%. Membership revenue is expected to grow 2% from a year ago.

Equity analysts will also pay attention to operating margins which are expected to slightly increase from the year-ago period. The U.S. margin is forecast at 4.9%, International at 3.47% with Sam’s Club at 2.67%.

Economists at Wells Fargo Securities said the staying power of the consumer has been on full display this year. Retail sales beat expectations the past three months and were up 3.4% year-over-year in September. Stronger-than-expected sales underpinned real personal consumption expenditures’ 4% annualized growth rate in the third quarter, the fastest pace since 2021, according to Sarah House, senior economist at Wells Fargo.

The economist expects retail sales to decline 0.2% in October because of bigger spending in the summer months. Consumers who pulled their holiday spending forward to take advantage of October sales from Amazon, Target and Walmart pose an upside risk to the October sales forecast, House said.

Bank of America analysts said consumers are looking for values and retailers catering to that trend will benefit. Walmart recently lowered the prices of groceries typically purchased for Thanksgiving to pre-pandemic levels. Aldi also announced major price rollbacks on 70 seasonal food items by up to 50%.

Analysts will also look for an update from Walmart on early holiday spending patterns and the retailer’s inventory which ticked higher for seasonal items this year. U.S. comp sales are forecast to grow between 3% to 4% with a 14.7% increase in e-commerce growth fueled by Walmart’s expanding marketplace and its online grocery business.

Stephens Inc. analyst Ben Bienvenu rates the stock a “buy” despite the share price reaching a 52-week high of $166.61 on Nov. 7. Bienvenu has a target price of $185 and has written about the retailer’s ability to buck the sluggish industry trend given its diversified revenue streams from the company’s ancillary business units that sell advertising, data analytics insights, fulfillment and final mile delivery services to suppliers and other retailers.

Raymond James & Associates also pegs Walmart a “buy” with a target price of $170, noting the retailer could face margin pressures due to discounting inventory amid cautious holiday spending. The analysts do like Walmart’s ability to generate cash through its other business units.

Analysts with Zacks also like Walmart shares for a long-term investment, even at its high prices. Zacks credits Walmart with transitioning from brick-and-mortar into an omnichannel player that continues to diversify its revenue streams. Since being added to the Zacks Focus List on May 30, 2017, at $78.13 per share, shares of Walmart have increased more than 270% at the retailer’s price on Nov. 9.  Zack’s said five analysts revised their earnings estimate upward in the last 60 days for Walmart’s full-year results which will be reported in February.

Walmart shares (NYSE: WMT) closed Friday at $166.19, up $2.27. The stock price has traded between $136.09 and $166.61 over the past 52 weeks.