Walmart's earnings fall short while Target struggles in the battle for grocery supremacy. Analysts analyze their performance and market opportunities. Recent shifts in Walmart's C-suite and the impact of macroeconomic challenges are also discussed.
Walmart, recognized as the world's largest retailer (ticker: WMT), recently reported its earnings for the quarter, and it seems to have left investors wanting more. With revenue expectations unmet and revised guidance issued, analysts are eager to see how this retail giant fares in the coming months.
Analysts predict that Walmart will announce earnings of $1.71 per share on $160.2 billion in revenue for the second quarter. Impressive same-store sales growth of 4.1% year over year only adds to the positive outlook for the company.
Wall Street experts have expressed optimism regarding Walmart's ability to surpass or at least meet earnings estimates. In fact, Citi analyst Paul Lejuez, who rates the stock a Buy, expects Walmart to outperform on EPS while achieving sales that align with estimates.
Evercore ISI analyst Greg Melich shares this sentiment and has gone so far as to include Walmart in the firm's Tactical Outperform List. This list identifies near-term events that could significantly impact a stock's price. Melich believes Walmart's impressive foot traffic suggests it may have gained market share in both the big-box and grocery sectors, unlike some competitors such as Target (TGT) witnessing a slowdown.
Target's recent revision of their fiscal 2024 guidance indicates that consumer demand for discretionary purchases still remains soft. However, they have observed an increase in what they refer to as "frequency purchases," particularly in groceries and household items.
On the other hand, groceries have always been a stronghold for Walmart. This may give them a competitive edge over Target in their ongoing battle for market dominance. Furthermore, Walmart's laser focus on essential products has proven successful, especially in a time when inflation has made consumers more price-sensitive. In recent quarters, Walmart has expanded its market share in the grocery category among various consumer demographics, even attracting higher-income shoppers.
Investors eagerly anticipate signs of Walmart's continued expansion in the grocery segment. Equally intriguing is how the company plans to retain these new customers once macroeconomic conditions improve.
As Walmart navigates the ever-changing retail landscape, all eyes will remain fixed on its performance. The retail giant's ability to adapt and capitalize on market opportunities will undoubtedly shape its trajectory moving forward.
Watch for more details on recent shifts in Walmart's C-suite. On Wednesday, Walmart announced that Judith McKenna, CEO of Walmart International, will be retiring in January 2024. She will begin transitioning out of her role on September 11.
Wall Street's bullishness poses one of the biggest risks for Walmart this earnings season. Analysts may have set a bar that is too high, and the stock's impressive 12% gain this year has driven up the company's valuation, leaving very little room for error.
Currently, Walmart trades at 23.9 times forward earnings, slightly higher than its five-year average of 22.5. In comparison, competitors Target and Kroger (KR) have lower valuations. Only Costco Wholesale (COST) surpasses Walmart with a valuation of 36.1, according to FactSet.
Even if Walmart delivers solid financial results, there is a possibility of the stock selling off due to high expectations, as noted by Evercore's Melich.
While Walmart has experienced stronger sales compared to Target in recent quarters, it is not entirely immune to the macroeconomic challenges that have affected its largest competitor in the current quarter. Unlike Target, which largely serves middle- to high-income shoppers, Walmart caters to a range of consumers across different income groups. This reliance on low- and middle-income shoppers, who are more susceptible to higher food and gasoline prices, as well as increased interest rates, poses potential risks to Walmart's performance. Bradley Thomas, an analyst from KeyBanc Capital Markets, highlighted this vulnerability.
Thomas stated, "While WMT has demonstrated resilience during previous recessions, a weakening in consumer spending or confidence, along with a slowdown in the U.S. economy, could have a negative impact on the company's growth and earnings." Despite these concerns, Thomas maintained an Overweight rating on the stock.
On Wednesday, Walmart's stock managed to hold onto a modest 0.1% gain, outperforming the S&P 500 index, which experienced a 0.8% loss. In July, 's provided a positive outlook on Walmart, recommending it as a buy.
In contrast, shares of Target saw a 3% increase on Wednesday.
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