Categories Analysis, Retail

Can Walmart (WMT) beat the supply chain crisis, inflation woes?

In the third quarter of 2022, adjusted earnings increased by 8% to $1.45 per share and came in above analysts' estimates

In a sign that big-box retailers fall behind their e-commerce counterparts when it comes to tapping into the COVID-induced shift in consumer behavior, Walmart, Inc. (NYSE: WMT) suffered a stock selloff this week despite reporting better-than-expected earnings. The market seems to be concerned about margin pressures due to supply chain disruption and lackluster sales performance in the international market.  

Walmart’s stock has lost about 2% since the earnings announcement, extending the weakness experienced since the beginning of the month. While the pullback can be seen as a buying opportunity, growing inflationary pressures and the management’s decisions to hold prices down give a bearish signal.


Read management/analysts’ comments on Walmart’s Q3 2022 results


Investing in WMT?

Market watchers, in general, are bullish on the stock, citing its long-term prospects and underlying strength of the Walmart brand. They are expecting a strong rebound over the 12-month period — as much as 21% growth from the last closing price. WMT is undoubtedly one of the best long-term investment options.

Considering the high grocery demand, the company has focused its growth strategy on expanding market share in that segment, lately. The omnichannel push has translated into record digital penetration. Going forward, the company expects to gain an edge over rivals through competitive pricing despite the inflationary environment. It is worth noting that inflation climbed to a 30-year high in September as food and gasoline become more expensive.

Pricing

Nevertheless, the pricing strategy will likely drag down margins though it complements Walmart’s goal of expanding market share ahead of the holiday season. The persistent supply chain disruption can have a negative impact on sales, though the company has tried to tackle the issue by chartering cargo vessels, adding to the cost pressure. Also, in the coming quarters, it might not be easy for the retail giant to match the unusually strong performance of the last one-and-half years.

Walmart Q3 2022 earnings infographic

“What’s really important in retail is knowing your customer, understanding the customer’s intent, and then taking into the catalog, whether it’s 1P or 3P and matching the items that they are looking for, and then it’s up to the team here to execute. And we’ve got a really clear customer value index that we think about each and every day online, and we measure ourselves to that,” said Walmart’s CEO John Furner during his post-earnings interaction with analysts.

Broad-based Gain

In the September quarter, earnings topped expectations as they did in the trailing two quarters. A 20% fall in international sales was more than offset by high domestic and Sam’s Club sales. There was a 9.2% growth in U.S comparable store sales. As a result, adjusted earnings moved up by 8% to $1.45 per share in the third quarter and came in above the estimates.

Fellow retailer Target Corporation (NYSE: TGT) on Wednesday said its sales grew 13% annually to around $26 billion in the most recent quarter, driving up earnings by 9% to $3.03 per share.


Beating odds, Best Buy emerges as a COVID winner. Is the stock a buy?


After peaking almost a year ago, Walmart’s stock experienced high volatility in 2021, often underperforming the S&P 500 index. In the past twelve months, it lost about 5% and closed the last trading session at $143.17.

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