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HomeMarketWalmart Reports Earnings Today. What to Expect.

Walmart Reports Earnings Today. What to Expect.

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Walmart’s third-quarter earnings could be a bright spot in what is slated to be a muted week for retail earnings.

The retail giant is scheduled to release its results before the market opens on Tuesday. Analysts are expecting
Walmart
(ticker:
WMT
) to post adjusted earnings of $1.32 a share on $147.7 billion in revenue, according to FactSet. Same-store sales are expected to rise by 4.3%.

The odds that the company meets sales and earnings expectations are high, analysts say. Value retailers like Walmart have become even more popular among shoppers as inflation hovers close to its highest point in four decades, helping the company grow market share and drive sales growth. Even high-income shoppers have started shopping at Walmart more frequently, executives said during the company’s second-quarter earnings call.

That’s made Walmart somewhat of a “safety play” over the last year, wrote RBC Capital Markets analyst Steven Shemesh. The stock is down only 3.6% year-to-date, trumping the S&P 500’s 17% decline.

“Consumers have surely been leaning on this staples retailer to stretch their budgets,” agreed UBS analyst Michael Lasser, writing in a research note in early November. “WMT is well suited for this environment.”

How safe Walmart will be for the remainder of this year remains a big question for investors—one that could be answered by the company’s guidance. Walmart slashed its profit outlook for the fiscal year in July, painting a gloomy picture on the health of the consumer and sending shock waves across the market. Investors grew more optimistic in August, after the company posted a better-than-expected second-quarter earnings report and slightly raised its full-year earnings outlook.

Wall Street would be content if the company is able to maintain its current outlook, which calls for earnings per share to decline between 9% and 11%. That said, if management lowers guidance, it could shake up markets yet again, as it would suggest that consumers are in a shakier financial state than predicted.

Aside from outlook, investors will be focusing on management’s commentary regarding inventory levels. Walmart has had elevated inventories since the end of the first quarter, which has been pressuring gross margins and profit. Executives indicated it would take several quarters for inventory levels to rebalance, so any progress on the matter would be received positively by investors.

“The market wants to see continued progress on inventory to feel comfortable with the gross margin outlook in 4Q,” wrote Citi analyst Paul Lejuez. “If inventory comes in high, it will be important to hear if there will be any negative impact to gross margin in 4Q and/or into [the first half of 2023].”

Until the company clears out all its inventory, however, gross margins could continue to take a hit, a likelihood that many analysts have already factored into their estimates. UBS’s Lasser and RBC’s Shemesh are both predicting gross margins will drop by 0.75 percentage points in the third quarter.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

Credit: marketwatch.com

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