Walmart Earnings: WMT has dropped more than 4% on outlook

• Walmart stock issued FY2024 EPS guidance about 50 cents below consensus.
• WMT stock dropped more than 4% in Tuesday's premarket.
• Walmart beat Q4 consensus on the top and bottom lines.
• Walmart gained US grocery share in Q4.

Walmart (WMT) reported a somewhat reduced outlook for 2023 (fiscal 2024) that greatly disappointed the market. CEO Doug McMillan guided for full-year 2023 adjusted earnings per share (EPS) of between $5.90 and $6.05. Wall Street consensus had been $6.53, according to FactSet.

Walmart stock dropped 4.2% to $140.29 in Tuesday's premarket. All three major indices are in the red early Tuesday as the market also took into the account a similarly poor guidance outlook for institutional mainstay Home Depot (HD).

Walmart stock news: Market disregards bright present, focuses on tougher future

The market appears to have looked right past Walmart's solid beat on top and bottom lines in the fourth quarter. The world's largest retailer posted adjusted EPS of $1.71 in the quarter ending January 27 compared with consensus for $1.52. Likewise, Q4 revenue came in at $164.1 billion, ahead of consensus for $159.7 billion.

US same store sales were robust in the quarter, arriving up 8.3% YoY compared with Wall Street expecations for a 4.9% increase. Gross profit margin, however, dropped 44 basis points due to restructuring charges in Walmart's international segment. That part of the business brought in $27.6 billion in sales, up a dismal 2.1% YoY.

"The team delivered a strong quarter to finish the year, and as our results in the last two quarters show, they acted quickly and aggressively to address the inventory and cost challenges we faced last year," said CEO Doug McMillan.

Walmart grew its market share in the US grocery sales segment in Q4 due to what management said were customers focused on reducing their spending in light of inflation. It is that very cash-constrained customer, however, that worries Walmart executives going into 2023. Additionally, the first-in-first-out method of inventory management means that continued increases in inflation will hurt Walmart's bottom line as the end of each quarter coincides with sales of lower-priced, older goods counteracted by higher-priced, new inventory. This issue become more heavily important as prices rise sharply.

Also, management said that higher interest rates would also reduce its bottom line in 2023.

Walmart stock forecast

It is not terribly surprising that Walmart's stock price was repelled from Friday's close as this was nearly in line with a long-term price level of importance. $146.50 has worked as resistance on a dozen occasions or more since 2020, and it did so again last week and in early January. Now WMT stock has descended to the $142s where it experienced resistance last November and then support in December. Any disgruntlement in the macro picture will likely see Walmart stock descending to support at $138.70. Below there is further long-term support at $128.30 where the retailer found support during the October lows. Any weekly close above $146.50 spells the end of this bearish trend form earnings.

WMT daily chart