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Earnings Results: Walmart stock posts biggest earnings gain in 4 years, as improved inventory position pleases Wall Street

Shares of Walmart Inc. surged Tuesday to a six-month high, after the discount retail behemoth reported a big fiscal third-quarter earnings beat, raised its full-year outlook, improved its inventory position and set a new $20 billion stock repurchase program.

The company also announced a $3 billion settlement of opioid litigation, to put that overhang behind it.

The stock

shot up 6.5% to $147.44, enough to pace the Dow Jones Industrial Average’s

gainers. The stock’s $9.05 price gain added about 60 points to the price of the Dow, which closed up 56 points, or 0.2%.

The stock’s percentage gain was the biggest since it climbed 6.8% on July 7, 2020, and the best one-day, post-earnings performance since it hiked up 9.3% on Aug. 16, 2018, after results for the fiscal second quarter of 2018 were reported.

“Walmart’s 3Q22 print checked all the major boxes, including a surprisingly large beat in the quarter, 4th-quarter guidance that is at least in line with consensus if not a bit better on the important line items, and perhaps most impressively, a significant improvement in their inventory position,” D.A. Davidson analyst Michael Baker wrote in a note to clients, while reiterating his buy rating.

Walmart swung to a net loss for the quarter to Oct. 31 of $1.80 billion, or 66 cents a share, from net income of $3.11 billion, or $1.11 a share, in the same period a year ago.

Excluding nonrecurring items, such as $3.33 billion in opioid legal charges, adjusted earnings per share of $1.50 beat the FactSet consensus of $1.32. That’s the biggest beat on a percentage basis (13.6%) in six quarters, according to FactSet data.

Revenue grew 8.7% to $152.81 billion, above the FactSet consensus of $147.67 billion. Walmart U.S. sales rose 8.5% to $104.8 billion, above expectations of $100.5 billion, and Sam’s Club sales jumped 12.8% to $21.4 billion to match forecasts.

Walmart International sales rose 7.1% to $25.3 billion, or increased 13.3% to $26.8 billion when excluding the impact of unfavorable currency translation.

Cost of sales increased more than revenue, up 10.1% to $115.61 billion, as gross margin contracted to 24.3% from 25.3%

Walmart U.S. same-store sales rose 8.2%, well above the FactSet consensus of a 3.6% rise, and Sam’s Club same-store sales increased 10.0% to beat expectations of 8.7%.

The company held $64.7 billion in inventory as of Oct. 31, up 12.6% from what it held a year ago, but that was a marked improvement from the 25.5% increase reported in the second quarter.

Chief Executive Doug McMillon said on the post-earnings conference call with analysts that inflation, rather than units, drove the majority of the year-over-year increase in inventory.

“We expect this progress to continue through the fourth quarter and that we’ll end the year in even better shape,” McMillon said, according to a FactSet transcript.

The company had issued two profit warnings in two months earlier this year, as it was forced to mark down prices to clear excess inventory.

For fiscal 2023, Walmart said it now expects adjusted EPS a decline of 6% to 7% from a year ago, compared with previous guidance of a decline of 8% to 10%. The current FactSet EPS consensus of $5.87 implies a 9.1% drop.

The company raised its net sales growth guidance to 5.5% from 4.5%, while the FactSet net sales consensus of $596.5 billion implies a 5.1% rise.

“[I]n this period of macroeconomic uncertainty, we believe that we are well equipped to continue gaining market share in an environment where consumers need to stretch their dollars further,” Chief Financial Officer John Rainey said on post-earnings call. “We will continue to advocate for customers and work with our supplier partners to maintain strong price gaps and deliver lower relative pricing versus competitors.”

Separately, the company set a new $20 billion stock repurchase authorization, to replace the existing program that had about $1.9 billion remaining at the end of the third quarter. The new program represents about 5% of Walmart’s current market capitalization of $TK billion.

The stock, which closed at the highest price since May 16, has advanced 5.8% over the past three months, while the SPDR Consumer Staples Select Sector exchange-traded fund

has lost 4.6% and the Dow has slipped 1.6%.

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