Walmart beats profit expectations but warns of inflation pressures

February 22, 2023 (MLN): Walmart has reported better-than-expected profits for the critical holiday season quarter, with earnings rising 76% YoY to $6.3 billion. However, the world's biggest retailer is cautious about the year ahead due to inflation squeezing consumers, with Chief Executive Doug McMillon predicting "stubborn inflation" in food.

Despite this, Walmart's expanded e-commerce and delivery business has attracted more middle- and high-income shoppers. Shares of Walmart initially dropped but later turned positive.

Walmart's strength in groceries and other consumable categories, including pet and personal care, offset the hit from lower sales in areas like toys, electronics, and home goods.

The latter has higher profit margins but has been less sought-after as shoppers pay more for fuel and household staples. Walmart's profits have also been affected by higher labor costs and excess inventory of some goods, although progress has been made on this front.

However, Walmart's profit outlook for the current year is estimated at $5.90 to $6.05 per share, with much lower US comparable sales growth, which is less than half the revenue growth over the last year.

Analysts had projected profits of $6.50 per share. Walmart also sees net sales growth of at most 3%, less than half the revenue growth over the last year. CFO John David Rainey said the forecast reflected "a lot of uncertainty with the macro backdrop" as the Federal Reserve moves aggressively to counter inflation.

Meanwhile, shares of US home improvement giant Home Depot fell sharply as it projected flat 2023 sales and announced $1 billion in fresh spending to boost employee salaries.

Home Depot's Q4 profits were essentially unchanged from the year-ago period at $3.4 billion, while revenues rose 0.3% YoY to $35.8 billion, slightly below analyst expectations. The company also forecast a dip in earnings per share.

During a conference call, CFO Richard McPhail said the outlook reflected a shift in consumer spending from goods to services. Home Depot announced it will invest an additional $1 billion in hourly staff, with staff earning at least $15 per hour throughout the US. Neil Saunders of consultancy GlobalData said, "After a year of defying gravity, the slowing economy and pressures on consumers have finally caught up with Home Depot." He also noted that higher interest rates dragged on the housing market.

Shares of Walmart rose 0.6% to $147.33, while Home Depot tumbled 7.1% to $295.50.

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