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What’re the Key Takeaways from Walmart’s Fourth Quarter Earnings

walmart

Walmart’s (WMT) stock fell sharply yesterday after reporting mixed fourth quarter earnings. What’re the key takeaways from the company’s earnings report and what’re analysts forecasting for the retail giant.

Walmart’s revenues in the fiscal fourth quarter of 2021 increased 7.3% year over year to $152.1 billion. The company’s US comp sales in the quarter increased 8.6% while eCommerce sales rose 69% over the period. Like other brick and mortar retailers, Walmart is investing heavily to expand its eCommerce business. Also, Walmart has been able to capture market share in the US as some of its competitors like JCPenney are in turmoil and are gradually shutting stores.

Walmart reports record revenues in fiscal 2021

Walmart International reported a 5.5% year over year increase in sales in the quarter. The sales increase primarily came from higher sales in Canada and Mexico. Flipkart, the Indian eCommerce company that Walmart has acquired, also contributed to the increase in Walmart’s international sales.

Sam’s Club reported a 10.8% increase in comp sales in the quarter while the segment’s eCommerce sales increased 42% over the period.  Sam Club’s membership income increased 12.9% in the quarter which was the highest in six years.

In the fiscal year 2021, the company reported revenues of nearly $560 billion. The revenues were higher by $40 billion in constant currency terms from the fiscal year 2020. Walmart’s fiscal fourth quarter 2021 as well as full-year revenues were a record for the company.

Walmart’s earnings miss estimates

While Walmart’s revenues were ahead of what analysts were expecting, the company missed consensus earnings estimates. The company reported a GAAP EPS of -$0.74 in the quarter while its adjusted EPS was $1.39. The company reported $1.1 billion as COVID-19 related costs in the quarter.

Notably retail as well as eCommerce companies are incurring higher costs due to the COVID-19 pandemic. The higher costs are generally towards employee salaries as well as sanitization expenses. Amazon and Costco are also witnessing higher COVID-19 related costs. After spending billions of dollars in 2020 towards COVID-19 related expenses, Amazon expects another $2 billion as COVID-19 related expenses in the first quarter of 2021.

Walmart expects higher capital expenditure

Meanwhile, Walmart expects higher investments as well as expenses in the fiscal year 2022 that will take a toll on its earnings. The company also announced a wage hike for almost a third of its US workers which would take its average pay above $15 per hour even as its minimum starting wage remains at $11. Many US companies have been supportive of the $15 per hour minimum wage and Amazon are among the companies that pay a minimum of $15 per hour in the US.

Due to the higher expenses, Walmart expects it’s fiscal 2022 earnings to be lower than the fiscal year 2021. The company also expects fewer revenues in the year due to divestitures. Excluding the divestitures, it expects low single-digit revenue growth in the year. It also expects its capital expenditure at $14 billion in the year. Walmart expects its capital expenditure to be between 2.5-3% of its sales over the next few years.

Commenting on the higher capital expenditure, Walmart’s CFO Brett Biggs said “This spend will allow us to fully optimize our strategy, and in turn, accelerate the company’s top-line and profit growth rates in the mid to long-term.” He added, “After years of transition, these investments should put us in position for 4% plus sales growth and operating income growth rates higher than sales.”

How analysts see the results

“Guidance was muted, locking in gains from last year but stalling profit expansion in favor of critical investments in people and platform,” said Jefferies analyst Stephanie Wissink. According to the estimates compiled by MarketBeat, Walmart’s average price target is $150.43 which is a premium of 9.3% over current prices. The stock’s highest price target is $180 while $98 is its lowest price target.

Should you buy Walmart stock?

Of the 37 analysts covering Walmart stock, 27 rate it as a buy or higher while three analysts rate it as a sell. The remaining seven analysts rate it as a hold. Last month, FIX downgraded the stock from a hold to sell and lowered its price target from $157 to $131. However, Credit Suisse and Royal Bank of Canada reiterated their buy rating on the retailer.

Walmart stock fell 6.5% yesterday and was trading flat in premarkets today. The stock is down 4.5% so far in 2021 but is up 16.5% over the last year. The stock trades at an NTM (next-12 months) price to earnings multiple of 24.4x. It raised its annual dividend to $2.20 during the fourth quarter earnings call. Based on the current stock price, this would mean a dividend yield of 1.59%.

Walmart is getting aggressive

Walmart looks like a good stock to buy and a play on the company’s aggressive online foray. As the company’s CEO Doug McMillion said during the company’s fiscal fourth quarter 2021 earnings call “This is a time to be even more aggressive because of the opportunity we see in front of us.” He added, “The strategy, team and capabilities are in place. We have momentum with customers, and our financial position is strong.”

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Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.