Walmart loses 7% after Q3 report. Company sees weaker consumer trends 📉

Shares of the largest U.S. retailer Walmart (WMT.US), which climbed to new historic highs yesterday, are losing, as the company presented more cautious forecasts and expects lower consumer spending. As a result, the stock is losing, even though the results beat Wall Street forecasts for earnings per share as well as Q3 revenue. Walmart warned that observed consumer activity declined in the last two weeks of October, leading it to lower its annual profit forecast despite the company enters the retailer's historically highly successful Christmas season. Target (TGT.US) also posted declines before the US open today, with some of the euphoric gains coming from Macy's (M.US), which reported higher-than-forecast earnings and slightly more favorable annual guidance.

Adjusted earnings per share (EPS): $1.53 vs. $1.52 Refinitiv forecasts

Revenue: $160.80 billion vs. expected $159.72 billion Refinitiv forecasts

Walmart business still strong

• Results were supported by growth in the e-commerce sector and strong consumer activity in the underlying retail sector. The market chain is regarded as offering the most attractive prices among U.S. marketplaces, and as a result is experiencing a sizable increase in consumer activity, at a time of elevated inflation. In the US, Walmart shoppers visited stores more often and spent more in them. The average number of customer transactions rose 3.4%, and the average receipt value rose 1.5% year-on-year.
• E-commerce sales result increased 24% y/y in the US and 15% y/y outside the domestic market. Walmart Connect's advertising revenue rose 26% y/y as the advertising industry returned to slightly better health after a dismal 2022. The company estimates adjusted annual earnings per share of $6.40 to $6.48 for the year, below analysts' expectations of $6.48 (though higher on a k/k basis). The company expects net sales to grow 5% y/y to 5.5%;

CFO, Rainey warned of retail trends

• Walmart CFO John David Rainey stressed that consumers are leaning toward big promotions and looking for bargains. As customers wait for lower prices, the company has seen a drop in purchases before and after the retailer's vital sales campaigns.
• He stressed that while Halloween 'was generally good, there were some industry trends in the last few weeks of October that made us stop and think about the consumer condition.' Walmart's CFO stressed that at the beginning of the fourth quarter, apparel sales, were boosted by holiday promotions
• In the third quarter, Walmart's net income was $453 million ($0.17 per share, compared to a loss of $0.66 in Q3 2022). In the year-ago quarter, the company posted a $1.8 billion loss due to a costly lawsuit settlement for the company.

Undoubtedly, the company's business remains strong and there is no earthquake on the horizon. On the one hand, Walmart's message seems to reflect lower inflation readings from the US, but on the other hand it puts a question mark over the actual health of consumers at a time when the business, considered the most resilient among retailers, is experiencing negative sales trends in the final weeks before the start of the holiday season.

Pre-opening market quotes indicate that Walmart (WMT.US) shares will open today near $160 per share. Source: xStation5