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Walmart Spooks The Market

consumer discretionary Nov 16, 2023

Despite an earnings beat, a weaker full-year outlook has investors fleeing the stock


After a pretty decent earnings season in retail, Walmart ruined the party by posting guidance that was softer than investors expected. Let's unpack what happened. 


This market will absolutely gut companies if they offer even the slightest whiff of bad news. Exactly one data point in this report went a little sideways and combined with basically a sentence in management's statement to drop Walmart by over 5% in premarket trading. 

So, Walmart beat earnings and revenue estimates by generating a strong $1.52 EPS from $160.8 billion in revenue. Walmart also offered strong revenue guidance for the year, anticipating 5% growth in yearly sales from 2022 to 2023. But then Walmart also announced they anticipate generating $6.40 to $6.48 in earnings per share from that yearly revenue. $6.48 used to be the mid-range for Walmart's guidance for the year and now it's their absolute ceiling. Investors took that news as Walmart giving away the game and needing to heavily rely on discounts and other promotions to keep revenue and sales growth moving in the right direction. 


Meanwhile, Walmart's CFO also mentioned that consumers are heavily relying on discounts. The company is seeing a measurable drop off in revenue both before and after a sales event, which signals that consumers are even more price-sensitive than expected. There were some sales trends later in October that gave the Walmart team reasons to reconsider how strong consumers actually are in this inflationary moment. All of these comments added up to drive investor sentiment away from the stock. 


With actual sales numbers and revenue guidance still strong, it's hard to parse this price action. Investors in this market are overeager for some sort of black swan event to prove how weak the economy actually is. At the same time, the inflation rally we've seen for the past few weeks was getting pretty heated, so something was bound to inspire a little pullback. For now, this looks like Walmart getting unfairly punished for nuance in their predictions and public statements. Walmart fell as much as 6% in early trading and is moving with a lot of volatility as the day goes on.