Walmart Inc. (WMT - Free Report) is likely to register a top-line increase from the respective year-ago fiscal quarter’s reading when it reports fourth-quarter fiscal 2023 earnings on Feb 21. The Zacks Consensus Estimate for quarterly revenues is pegged at $158.9 billion, suggesting growth of about 4% from the prior-year fiscal quarter’s reported figure.

The Zacks Consensus Estimate for quarterly earnings has risen by a penny in the past 30 days to $1.51 per share. However, this indicates a drop of 1.3% from the figure reported in the prior-year fiscal quarter.

The omnichannel retailer has a trailing four-quarter earnings surprise of 3.8%, on average. WMT delivered an earnings surprise of 13.6% in the last reported quarter.

Walmart Inc. Price, Consensus, and EPS Surprise

Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote
 

Cost and Profit Picture

Like other industry participants, Walmart is encountering cost inflation and expects it to remain elevated. In the third quarter of fiscal 2023, Walmart’s consolidated gross profit margin contracted by 89 basis points (bps), primarily due to markdowns and a sales mix in the U.S. segment, a LIFO charge at Sam’s Club related to inflation and the timing of Flipkart’s annual event.

The gross margin at Walmart U.S. fell 77 bps due to increased general merchandise markdowns and a mix shift toward grocery, somewhat offset by pricing. The persistence of any of these factors remains a concern.

For the fourth quarter, consolidated operating income growth is expected between a decline of 1% and an increase of 1%. Adjusted earnings per share (EPS) are likely to have declined by 3-5% in the fourth quarter.

Management’s fiscal 2023 guidance for consolidated operating income and EPS views suggest a decline from the year-ago period’s reported figures. Management expects the consolidated adjusted operating income to have declined 6.5-7.5%. Excluding divestitures, management expects a consolidated adjusted operating income decline of 5.5-6.5%. Fiscal 2023 EPS is expected to have decreased by 6-7%, and 5-6% excluding divestitures.
 

Favorable Trends

WMT has been gaining from its sturdy comp sales record, which is driven by its constant store expansion efforts and splendid e-commerce initiatives. Walmart has been benefiting from the growing e-commerce business and omnichannel penetration.

The company has been undertaking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. Walmart is making aggressive efforts to expand in the booming online grocery space, which has been a major contributor to e-commerce sales.

The company is innovating in the supply chain, adding capacity and building businesses, such as Walmart GoLocal, Walmart Connect, Walmart Luminate, Walmart+, Spark Delivery, Marketplace, and Walmart Fulfillment Services. WMT has been strengthening its delivery arm, as evident from its expansion of the InHome delivery service, investments in DroneUp, a pilot with HomeValet, the introduction of Carrier Pickup by FedEx, the launch of the Walmart+ membership program, and the introduction of Express Delivery, among others.

As of the third quarter, Walmart U.S. had 4,600 pickup locations and more than 3,900 same-day delivery stores. The company’s compelling pricing strategy has also been aiding amid a rising inflationary environment. Walmart expects consolidated net sales growth of nearly 5.5% for fiscal 2023. These factors bode well for the fourth quarter.
 

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Walmart this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the odds of an earnings beat, which is not the case here.

Walmart has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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