Is Walmart's New CEO Quietly Setting Up an Upside Surprise?
Now is not the time to panic as the retail giant manages expectations, and three bright spots emerge. Here's how to play the stock.
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Walmart (WMT) shares fell 1.4% on Thursday after the company narrowly beat estimates for earnings and revenue in the company’s just-ended quarter, Walmart also provided cautious guidance for the coming year.
Walmart sees net sales growth of 3.5% to 4.5% in the coming year, and earnings per share in the $2.75 to $3.75 range.
Managing Expectations
On the surface, this news seems concerning, but what we are likely witnessing is a new leader attempting to manage sky-high expectations. John Furner assumed the reins as President and CEO of Walmart on February 1, the first day of the company’s fiscal year, and he likely tempering analysts' expectations for earnings and growth.
Regarding forward guidance, Walmart CFO John David Rainey stated, “Our posture is one that’s probably a little more conservative…we want to make sure that we maintain maximum flexibility to operate as we go through the year.” Rainey added that it was “...prudent to start the year with a level of conservatism.”
My interpretation is that Furner and Rainey are keeping expectations in check, making it easier for retail behemoth to beat lowered expectations in the future.
Charting Walmart
Walmart closed at an all-time high last week, on February 13. Despite Thursday’s decline, the stock has gained 10.74% year-to-date, while the S&P 500 remains flat on the year.
Walmart’s chart indicates that a short-term pullback is likely. The stock has formed a bearish engulfing candlestick pattern (circled), indicating additional potential downside.
Traders can look to buy or add to positions near $120, an area that contains Walmart’s 50-day moving average (blue) as well as a bullish trend line (black dotted line).
Bright Spots
One bright spot for Walmart is ecommerce, which climbed by 27%, topping $150 billion for the first time. It was the 15th consecutive quarter of double-digit growth for the Bentonville, Arkansas-based retailer’s ecommerce arm.
Although a specific figure wasn’t given, Furner mentioned that “a large number” of ecommerce orders are now delivered within 30 minutes.
Walmart also reported success with higher-income shoppers. “The majority of our share gains came from households making more than $100,000”, said Furner.
Walmart also announced an increase in its stock dividend to $0.99 per share, an increase of 5.3%, as well as a $30 billion stock buyback program.
Bottom Line
Although Walmart employs AI and technology in its business, it’s not primarily a technology company. This year, that might actually be an advantage, as investors lean away from tech and toward more mundane areas, like consumer products.
I'm not concerned by what I consider expectation management on the part of company executives. Walmart has been a core position in our portfolio for years, and I don’t plan to make any changes.
At the time of publication, Ponsi was long WMT.
