Walmart cautious on economy, forecasts annual earnings below estimates

Walmart Inc forecast full-year earnings below estimates on Tuesday, saying it was cautious about the economic outlook for 2023 and that consumers were likely to continue shopping for lower-priced items that could pressure its margins.

Shares of the world's largest retailer fell 2.6 per cent to $142.50 in premarket trading.

Walmart, which operates more than 5,000 stores in the United States, has been using its market power to negotiate better prices from its suppliers and ward off competition from rivals such as Target Corp, whose shelves are relatively pricier.

However, lower prices and discounts, along with weak consumer sentiment and Walmart's decision to increase employee wages, are expected to take a toll on its margins this year.

"There's still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we've not been in a situation like this where the Fed is raising at the rate that it does," Chief Financial Officer John David Rainey told Reuters.

"So, that makes us cautious on the economic outlook because we simply don't know what we don't know."

Walmart forecast fiscal 2024 earnings of $5.90 to $6.05 per share, compared with analysts' estimates of $6.50 per share, according to Refinitiv IBES data.

The consolidated gross profit rate declined 83 basis points in the holiday quarter, primarily due to markdowns and sales of lower-margin products, the company said.

There is also no guarantee that Walmart will be able to keep prices lower enough to spur demand, with a number of its biggest suppliers, including Nestle, Coca-Cola Co, Procter & Gamble and Unilever, disclosing in recent weeks that they are planning for more price hikes this year.

In contrast, Kraft Heinz and PepsiCo plan to pause further price hikes to counteract declining volumes, but their prices are still substantially elevated compared to a year earlier.

Rainey said a consumer shift toward buying more food and consumables from general merchandise is expected to be a drag on margins this year.

Still, Walmart reported strong demand in the quarter ended Jan. 31, posting total revenue of $164.05 billion, a 7.3 per cent increase from last year. Analysts had estimated revenues of $159.76 billion.

The company's quarterly attributable net income rose 76.2 per cent to $6.28 billion, helped by unrealized gains in equity and other investments.