Walmart Shares Tank the Most Since 1987

Ticker Symbol: WMT

Walmart shares were down close to 12% in midday trading after the company released a poor earnings report that generally missed Wall Street’s expectations. The pullback was the sharpest intraday decline in the company’s history since 1987.

Moreover, management said earnings were likely to drop 1% for fiscal 2022, after guiding towards a mid-single digit increase three months ago. The sharp change in commentary from the company comes in light of the sharply rising inflation rate in the U.S., especially in food prices.

The company vowed in its earnings call with analysts and investors to raise prices in order to guard against declining margins, but that it would still attempt to be the lowest cost retailer in most of its markets.

In addition, C.E.O. Doug McMillion indicated that surging fuel and logistics prices, caused partly by the spike in oil prices after Russia invaded Ukraine, were responsible for the earnings miss in the first quarter. The company reported an adjusted earnings per share of $1.30, missing the average analyst estimate of $1.48 and $1.69 in the 1Q 2021.

Still, the company reported a solid top-line result, posting comparable same store sales of +4% versus an estimate of +2.25%. Sam’s Club U.S. comparable sales, excluding gas, were up 10.2%, while the estimate was for a growth of 5%.

Aggregate revenue came in at $141.57 billion, up 2.4% year over year, beating the estimated $139.1 billion from analysts. Despite these revenue beats, bottom-line results were unexpected. The current unusual environment around pricing pressures could continue to pressure the company’s margins going forward.

Furthermore, sales growth in China was also lower than expected in the first quarter, mainly due to the resurgence of the pandemic in the country. Notwithstanding these poor results, Walmart should be well positioned to emerge from the current challenges as the company’s logistics and supply-chain management systems are world-class in the retail sector.

Additionally, the current pull-back in the share creates a good buying point for new investors. Walmart’s market share in the U.S. remains strong, and the company’s robust balance sheet should shelter it from any further slowdown in the global economy.

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