Meh on Walmart.
Investors may choose to look beyond Walmart's (WMT) earnings beat and zero in on several areas of concern. The world's largest retailer beat Wall Street's first-quarter earnings estimates by 2 cents a share on Thursday. Shares were relatively unchanged in premarket trading.
But there were weak spots that include:
(1) Walmart U.S. same store sales rose 2.1%, below analysts' forecasts for 2.5% growth.
(2) Gross profit margin at Walmart's U.S. business fell 23 basis points from the prior year amid investments in e-commerce and lower prices.
(3) Gross profit margin at Sam's Club also fell 23 basis points owing to inflationary pressures and actions taken to drop prices. The million dollar question is whether the first quarter marks the low quarter for Walmart's profit margin story this year.
There is little in the numbers to suggest that will be the case, especially with inflationary pressures taking hold in supply chains and competition getting even more heated. Walmart will also be working through integrating Flipkart -- there are always unforeseen costs in deals.
Your Deep Thoughts of the Day
Oil touched $80 a barrel for the first time since 2014 on Thursday. That should be a worry on the minds of all investors (those not overweight oil stocks). Just look at the Walmart quarter for signs of what rising oil prices means, and could mean if prices continue to stay hot.
Staying on the macro theme, Walmart's quarter also highlights the tight U.S. labor market. The competition for skilled workers is translating to a good bit of wage inflation that will either have to be eaten by companies or passed along to consumers. Either way, that's not bullish -- they are minefields that investors will have to navigate this summer or risk getting blown up.
What's on My Mind Right Now
(1) Preparing for a 10 a.m. ET interview with rock legend Gene Simmons at our HQ. Simmons will be chatting about the business of cannabis, an area he is dabbling in despite claiming he has never done drugs. Simmons should check out the new cannabis column from our sister publication Real Money. On another note, Simmons has made some impressive calls on the market the last few times he has come down to TheStreet. In September 2017, Simmons called for a quick move to Dow Jones Industrial Average
(2) Busy day Thursday for yours truly. Hopping on the phone with Kroger's CEO later to discuss a variety of topics, chief among them an interesting new deal announced with the U.K.'s Ocado. Kroger (KR) has done a good job navigating the one-two punch of Amazon (AMZN) and Walmart. Go inside the future of grocery shopping here, as presented by TheStreet.
(3) Brilliant op-ed on options trading via my friends at Neuberger Berman. Warning that this is a very long read, but you will definitely learn something.
TheStreet presents on May 22: "How to Stomach Market Volatility." Hosted by Fisher Investments and TheStreet's Jim Cramer, the exclusive live webinar will give you the tools to successfully navigate market volatility and discuss why having a wealth manager is more critical than ever before. Quickly register for the event here.