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Walmart lifts annual forecast, announces $20 billion share buyback

Stock Markets Nov 15, 2022 03:07PM ET
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© Reuters. Shopping trolley is seen in front of Walmart logo in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration
 
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By Siddharth Cavale and Uday Sampath Kumar

(Reuters) -Walmart Inc on Tuesday lifted its annual sales and profit forecast as demand for groceries holds up despite higher prices, while discounts on clothing and electronics helped it cut back excess inventories ahead of the busy holiday season.

The company also announced a new $20-billion share buyback plan, sending its shares as much as up 7% in morning trading to a six-month high of $148.40.

Its results boosted stocks of other major retailers, including Target Corp (NYSE:TGT), Costco (NASDAQ:COST) and Macy's Inc. (NYSE:M) Target reports results on Wednesday.

Amid persistent inflation, investors have been nervously eyeing how consumer spending pans out during the crucial holiday season, when retailers make more than a third of their annual profits.

"In this period of macroeconomic uncertainty... we are well equipped to continue gaining market share in an environment where consumers need to stretch their dollars further," Chief Financial Officer John David Rainey said on an investor call.

The world's largest retailer by sales forecast holiday quarter U.S. same-store sales, excluding fuel, to increase about 3%, below estimates of a 3.4% increase.

Rainey said the guidance assumes a more promotional holiday period and that consumers could slow spending, especially in general merchandise categories, due to continued rising costs for food.

The company's comments follow those of FedEx (NYSE:FDX) and Amazon (NASDAQ:AMZN), which have also warned of muted holiday season demand in recent weeks. Home improvement chain Home Depot (NYSE:HD) on Tuesday left its annual forecasts unchanged, adding to holiday season concerns amid a slowing housing market.

For the full-year, Walmart (NYSE:WMT) forecast net sales to rise 5.5%, above its previous forecast of a 4.5% increase.

Walmart also said it was better prepared on the inventory front with many of the challenges it faced earlier this year "cleared out." The company's inventories were up 13% at $65 billion on a value basis, which CFO Rainey said was 70% inflation driven, but on a unit basis was "much lower."

Walmart’s strong results prove its operational model excels during times of economic strength ... Walmart is a counter-recessionary retailer," Guru Hariharan, founder and CEO of retail ecommerce management firm CommerceIQ said.

FOOD INFLATION

While U.S. consumer prices rose less than expected in October, a recent survey shows that consumer sentiment slumped in November and inflation expectations had edged up.

CFO Rainey told Reuters that the company continued to see a mid-teen level of inflation in food, while general merchandise inflation eased "quite a bit."

The continued rise in food prices meant that Americans are trading down from higher quality proteins to beans, hotdogs, peanut butter and store-label brands, he added.

This helped it post a rise in third-quarter comparable sales, even though profit margins were impacted. Comparable sales at its Walmart U.S. business rose 8.2%, in part helped by a growing horde of households making $100,000 plus shopping at its stores, company executives said.

Walmart, however, swung to a third quarter loss of $1.8 billion due to $3.3 billion in legal settlements to resolve U.S. state and local lawsuits accusing it of mishandling opioid pain drugs.

"This settlement is a net positive as it removes a large unknown from the street," Brian Mulberry, client portfolio manager at Zacks Investment Management said.

Walmart lifts annual forecast, announces $20 billion share buyback
 

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Comments (2)
Ernie Keebler
Ernie Keebler Nov 15, 2022 3:17PM ET
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Excess profits providing for $20 billion share buy back but booking a loss from fines means not paying taxes while sticking it to consumers ain't capitalism great for the wealthy
Casador Del Oso
Casador Del Oso Nov 15, 2022 7:52AM ET
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Demand for groceries is high because people have to eat. It's called inelastic demand.
 
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