Walmart (WMT) shares edged modestly higher Tuesday after the world's largest retailer posted better-than-expected fourth-quarter earnings but issued a muted full-year profit forecast as it cautioned that consumers will continue to spend conservatively in a slowing economy.
With inflation holding at the highest levels in decades, and consumer spending on the wane, Walmart said higher-income customers made up nearly half its sales gains over the fourth quarter, a surprising change from the retailer's traditional lower-income cohort.
The boost helped group revenue rise 7.3% from a year earlier to $164 billion, topping analysts' forecasts, with same-store sales rising 8.3%, U.S. same-store sales rose 8.8% from last year, the company said, firmly topping the Refinitiv forecast of 5.8%. Profit margins, however, were clipped, with gross margins falling 83 basis points to 22.9%.
Walmart said adjusted earnings for the three months ended in December came in at $1.71 per share, up 11.8% from the year-earlier period and well ahead of the Wall Street consensus forecast of $1.51 per share.
Looking into the retailer's fiscal first quarter, which ends in April, Walmart expects adjusted earnings of between $1.25 and $1.30 per share with sales rising between 4.5% and 5%. For the full year, sales will likely rise 2.5% to 3% from 2022 levels, with Walmart forecasting earnings of between $5.90 and $6.05 per share.
"We’re excited about our momentum. The team delivered a strong quarter to finish the year, and as our results in the last two quarters show, they acted quickly and aggressively to address the inventory and cost challenges we faced last year," said CEO Doug McMillon. "We built momentum in the third quarter and that continues. We are well-positioned to start this fiscal year."
Walmart shares were marked 0.84% higher in early afternoon trading Tuesday following the earnings release to change hands at $147.71 each.
"We believe there is a healthy bit of conservatism in (Walmart's) outlook, which makes sense to us given the current uncertain environment," said D.A. Davidson analyst Michael Baker, who carries a buy rating with a $172.99 price target on the stock.
"Some of this could be due to the relatively new CFO wanting to set a low bar, something that we suggested would occur in our earnings preview," he added. "But, we also believe there are likely some cost pressures to be aware of, including wage pressures as Walmart has already announced increases to their pay structure."
Earlier Tuesday, Home Depot (HD) also posted better-than-expected fourth-quarter earnings but cautioned that 2023 profit will likely be flat with last year's levels as consumers rein in spending amid persistent inflation pressures.
