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Walmart Earnings Preview: Value-Focused Shoppers May Tame Cost Surge As Inflation, Gas Prices Bite

"We continue to believe Walmart could benefit from increased consumer focus on value prices," said BMO Capital Markets analyst Kelly Bania.

Updated at 1:35 pm EST

Walmart  (WMT) - Get Walmart Inc. Report shares edged lower Monday, but remain one of the few year-to-date gainers on the Dow, ahead of the retail giant's first quarter earnings prior to the start of trading on Tuesday. 

Walmart, in some ways the ultimate barometer of U.S. consumer sentiment, given the breadth of its market share and its dominant position in domestic grocery sales, is expected to post a bottom line of $1.48 per share, on revenues of $138.9 billion, when it reports its April quarter earnings prior to the start of trading.

Looking into the 2023 financial year, Walmart said in February that it sees net sales rising by around 3%, with earnings growth in the 'mid-single-digit' range.  

"We believe Walmart is well positioned in the current backdrop as consumers could seek more value in coming quarters amidst inflationary pressures and shares could benefit from money flows given the company's exposure to the US market," said Oppenheimer analyst Rupesh Parikh in an April client note that lifted the firm's price objective by $15, to $165 per share. 

Walmart shares were marked 0.7% higher in early afternoon trading Monday to change hands at $149.10 each, a move that extends the stock's year-to-date gain to around 3% and values the Bentonville, Arkansas-based giant at more than $410 billion.

Curiously, Walmart's numbers will come around 2 hours prior to a crucial reading of April retail sales, which are forecast to slow notably from their March gains as consumers struggle with the twin impacts of rising food inflation and record high gasoline prices.

Inflationary pressures remain acute, as well, even as the Commerce Department's headline April reading eased from a 40-year high to 8.1%, with so-called core inflation, which strips-out volatile components such as food and energy prices, rising 6.2%, near the highest since February of 1991.

Walmart, which normally benefits from a "value shift" in consumer sentiment given the lower price points of both its consumable and discretionary offerings, is still likely to see profits fall around 12.5% from last year as pandemic-powered sales fade and underlying costs, particularly in staff and driver wages, eats deeper into profits.

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Walmart said last month that it's boosting long-haul truck driver pay by as much as 30%, to as high as $110,000 per year, as federal limits on daily driving hours, Covid staffing shortages and supply chain disruptions have increased the difficulty in finding qualified drivers.

Amazon  (AMZN) - Get Amazon.com Inc. Report, the world's biggest online retailer, cautioned earlier this month that costs related to hiring, supply chain disruptions and warehouse management would combine to around $4 billion over the three months ending in June following its surprise first quarter loss of $3.8 billion and the slowest year-on-year revenue growth in more than a decade.

Walmart's superior position to Amazon in grocery store sales, however, where it remains the U.S. market leader, will likely provide a defensive tenor to both its first quarter earnings and near-term outlook.

BMO Capital Markets analyst Kelly Bania, who carries an 'outperform' rating on the stock with a $170 price target, thinks comparable grocery sales could rise 8% from last year, well ahead of the Street consensus for overall comparable sales growth of around 3.25%.

"We continue to believe Walmart could benefit from increased consumer focus on value prices but also expect that any potential top-line upside is likely to be reinvested into further value for the customer in effort to further capitalize on market share gains," Bania said in a recent client note.

The group's efforts to grow its digital sales business will also be in focus following the hiring of former PayPal  (PYPL) - Get PayPal Holdings Inc. Report executive John Rainey as its CFO last month, replacing the outgoing Brett Briggs.

Walmart said that first quarter e-commerce sales rose 21% from last year, and are up 75% on a two-year stack basis, thanks to its Walmart Plus incentive program and shifting consumer habits following the 2022 Covid pandemic.

Another factor of focus will the impact of the U.S. dollar's ongoing surge, which has lifted the greenback to its highest levels in twenty years, making the repatriation of overseas profits increasingly more expensive.

Walmart generated around 18% of its first quarter revenues outside of the United States, and around 14% of its total operating income of $5.89 billion.

The U.S. dollar index, which tracks a basket of six global currency peers, has risen around 9% this year and traded at a two-decade high of 105.01 late last week.