Why Walmart shares just slumped to five-week low

Knockout figures by Walmart Inc (NYSE:WMT) failed to propel the shares to new heights today as Wall Street worried over an uncertain outlook and promotion-driven market conditions.

The retail giant went into the third-quarter results boasting a record valuation of more than $450 billion (£362 billion), having consistently delivered performances ahead of guidance.

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The company, which operates more than 10,000 stores, impressed again in a release before today’s opening bell as it reported sales 5.2% higher at $160.8 billion (£129 billion) and adjusted earnings per share up 2% at $1.53 a share.

Despite the momentum at the start of the holiday season prompting Walmart to increase its full-year sales and earnings forecasts, investors took the opportunity to take profits.

The shares opened about $12 lower at $157 after the new full-year estimates for earnings in a range of $6.40 and $6.48 a share underwhelmed Wall Street analysts.

Worries over the squeeze from higher interest rates were also fuelled after the company’s chief financial officer told CNBC that consumers are “leaning heavily” into promotions.

Yesterday’s US retail sales figure decreased by 0.1% month-over-month in October, ending a six-month run of increases but still better than forecasts for a 0.3% decline.

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Hopes that interest rates are at their peak continue to mount, particularly after this week’s inflation reading showed a drop in the annual rate to 3.2%. The consumer prices release led Wall Street to look for a first cut in rates by the Federal Reserve as soon as May.

A resilient labour market has also raised optimism over a soft landing for the US economy, although figures today revealed the number of Americans filing for unemployment benefits rose by more than expected to the highest level in three months last week.

Most US companies in the S&P 500 index have now delivered results for the third quarter, with FactSet recently reporting year-on-year earnings growth of 4.1%. However, it notes that analysts are projecting a reduced growth rate of 3.2% for the current quarter.

The downturn is unlikely to continue, however, as Wall Street is forecasting year-on-year  growth of 6.7% in the first quarter of 2024 followed by 10.5% in the second quarter.

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At the sector level for the first quarter, FactSet said nine of the 11 sectors are predicted to report year-over-year earnings growth led by communication services at 19.9%, consumer discretionary (16.5%), and information technology (15.2%).

At a company level, NVIDIA Corp (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META) and Alphabet Inc Class A (NASDAQ:GOOGL) are predicted to be the largest contributors to earnings growth for the S&P 500 in the quarter.

Walmart shares are still 10% higher over the year, compared with a 15% decline for Target Corp (NYSE:TGT).

Yesterday, the general merchandise retailer rebounded 18% after quarterly earnings of $2.10 a share came in 36% stronger than a year ago and higher than the company’s guidance.