Key Morningstar Metrics for Walmart
- Fair Value Estimate: $145.00
- Morningstar Rating: 2 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of Walmart’s Earnings
Walmart WMT delivered third-quarter results that were mostly in line with our expectations as the firm continued to attract value-conscious consumers. But the company’s stock tumbled as management cited tumultuous spending patterns leading into the holiday season, as inflation and tighter economic conditions remain headwinds.
We believe Walmart is well-positioned to navigate a slower spending environment, given its impressive scale and enticing low-price value proposition in high-frequency categories like grocery. We plan to modestly raise our $145 fair value estimate due to the time value of money as shares approach fairly valued territory.
Comparable sales (excluding fuel) for Walmart U.S. improved 4.9% in the third quarter, driven by a 3.4% increase in transaction volume. Grocery saw a mid-single-digit percentage increase in sales, and management noted the category enjoyed market share gains, which we expect to continue in coming quarters. Health and wellness also delivered solid growth, though a reduced appetite for general merchandise, particularly for discretionary items, partially offset the strength in frequency categories.
Despite less promotional destocking than the prior year, Walmart U.S.’s operating margin declined by 30 basis points due to unfavorable sales mix, wage expense, and store remodels. Walmart has completed 494 remodels so far in fiscal 2024, and we expect reinvestment to remain a priority as it revamps the customer experience and refines its omnichannel offerings. Coupled with our expectation for continued softness in higher-margin discretionary categories, we expect margins to remain pressured.
Sam’s Club posted solid comparable sales growth of nearly 4%, driven entirely by improved transaction volume. Encouragingly, management noted that the membership count reached a record level. Internationally, sales improved by over 5% (constant currency), driven by 8% comparable sales growth in Mexico and a near-19% improvement in China.
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