Walmart revenue up 5.2%, stock price falls on consumer concerns

Walmart beat consensus estimates on the top and bottom lines for the third quarter ending Oct. 31, but the cautious consumer commentary from Walmart execs pushed the stock price down more than 7.5% in heavy trading on Thursday (Nov. 16).

Shares of Walmart (NYSE: WMT) traded 7.5% lower Thursday morning to $156.95. Over the past 52 weeks, the share prices have ranged from $136.09 and $169.94.

Walmart reported net income of $453 million, or 17 cents a share, up from the $1.79 billion loss reported a year ago. Adjusted earnings per share of $1.53 were up 2% from a year ago and also beat consensus expectations of $1.52. Total revenue, including sales and membership income, rose 5.2% year over year, totaling $160.804 billion. Revenue was also better than the $159.6 billion reported a year ago.

“We had strong revenue growth across segments for the quarter, and we’re excited to get an early start to the holiday season,” CEO Doug McMillon said in the report. “From a Thanksgiving meal that costs less than last year to great prices on fashion, toys, electronics, and seasonal decorations, we’re here to help families from around the world make this a special time. … Looking ahead, our inventory is in good shape, the teams are focused, and our associates are ready to serve our customers and members whenever and however they want to be served,” he added.

Walmart U.S. reported net sales of $109.4 billion, up 4.4% including fuel. Same-store comp sales improved 4.9%, with transactions up 3.4% and average ticket growth of 1.5%. Two bright spots in the U.S. business were the 24% growth in e-commerce sales from a year ago, led by grocery pickup and a 26% rise in advertising sales in the Walmart Connect business. The segment also reported operating income of $4.981 billion, down 2.2% year over year because of higher expenses from wage increases that offset the slightly better gross margins.

McMillon said the retail giant didn’t manage its expenses as well as it could have and that compromised some of the gains resulting from lower supply chain costs and improved inventory levels relative to a year ago.

Chief Financial Officer John David Rainey said consumers are “leaning heavily” into major promotions as they watch their spending and search for deals. As customers hold out for lower prices, Walmart said it has seen a drop in purchases before and after a sales event which has caused the retailer to rethink consumer health. Rainey said fourth-quarter apparel and some non-discretionary items on promotion have gained some momentum, adding there is ”still pressure on the consumer.”

Rainey’s cautious commentary reverberated through the financial markets as Walmart is often seen as a barometer of the consumer, given its size and reach.

Walmart’s other segment results also had solid quarter results, with the international business posting sales revenue of $28.022 billion, up 10.8% from a year ago. Operating income improved 29.7% to $1.117 billion. Walmart said sales growth was led by better results in China and Walmex. International e-commerce sales fell by 3%, while advertising revenue grew by 4%. Walmart said e-commerce growth was robust everywhere except in India as its annual sales event – Big Billion Days, which formerly occurred in Q3 – was moved to the fourth quarter this year.

Walmart’s international business unit reported operating income of $1.1 billion, up 29.7%, and up $1 billion or 10.7% on a constant currency basis. The retailer said there was strength in food and consumables, with comp-store sales growing 8% in Mexico. Sales in China were up 18.6%, while e-commerce sales rose 38%. Canada reported a 5.3% uptick in overall sales, with e-commerce sales rising 16%.

Sam’s Club posted a total revenue of $22 billion, up 2.8% year over year. Comp-store sales were up 3.8%, with transactions up 4%, offset by a 0.02% decline in average tickets. Sam’s said it gained market share in grocery, general merchandise and automotive. Operating income was $593 million, up 5.5%. When excluding fuel, the operating income grew 3.8%. Inventory was down 7.3% and the retailer said it was maintaining discipline in buying general merchandise due to the macro uncertainty.

Sam’s Club’s e-commerce sales rose 16% led by its curbside and delivery services. Membership income rose 7.2%, and its advertising business.

Walmart’s revenue for the first three fiscal quarters is $474.737 billion, up 6.1% year over year. Net income before one-time charges totals $10.017 billion, up 85%. Walmart expects full-year earnings to range from $6.40 to $6.48 per share, which is lower than analysts had forecast.

Equity analysts said Walmart’s quarterly results and overall financials are solid but the Walmart stock reached an all-time high this week and is up more than 20% on the year. Analysts at D.A. Davidson and Stephens Inc. said they still like Walmart for the long term as the company offers an offensive and defensive play as a consumable staples giant that continues to grow alternative revenue streams to bolster earnings and revenue.