Walmart, the world’s largest retailer, warned of weaker results for 2023 and expressed caution regarding the economic outlook on Tuesday. The company forecast full-year earnings for 2024 that fell short of estimates and highlighted that the profit margins could be under pressure due to the consumers’ cautious spending. The stock price of Walmart fell 4.6% to $139.75 in premarket trading due to rising concerns over inflation and fears of a potential economic downturn in the second half of the year if the US Federal Reserve increases borrowing costs to cool demand.
Walmart CEO, John Furner, pointed out that the current economic outlook is still uncertain, as the balance sheets of households are getting thinner, and the saving rate is lower than before the pandemic. The company is struggling to deal with price hikes from its suppliers in a high-inflation environment, and the uncertainty about the economic outlook is further making the company cautious. Furner added, “we simply don’t know what we don’t know.”
Walmart predicts earnings of $5.90 to $6.05 per share for the year until January 2024, lower than the analysts’ expectations of $6.50 per share, according to Refinitiv IBES data. Investors are closely monitoring Walmart’s efforts to negotiate better prices from suppliers and ward off competition from rivals, such as Target Corp, whose products are relatively pricier. The company has been hit by the consolidated gross profit rate, which fell 83 basis points in the holiday quarter, mainly due to markdowns and sales of lower-margin products.
Walmart reported strong demand in the fourth quarter, ending Jan. 31, with total revenue of $164.05 billion, up 7.3% from the previous year. However, comparable sales in the US rose by 8.3%, excluding fuel, as consumers shifted towards buying more food and consumables from general merchandise. Walmart’s consolidated gross profit rate has been affected by the rising demand for lower-margin products, which is likely to continue this year, dragging on margins. Although Walmart’s adjusted earnings per share for the quarter were $1.71, beating the average expectation of $1.51, investors remain cautious about the retailer’s 2023 results. Walmart has also increased its annual cash dividend by approximately 2% to $2.28 per share for fiscal 2024.