Deteriorating Walmart Shares in Spite of Promising Sales Forecast - Is It Worth Investing During Price Decline?
Walmart's Q3 Performance Shines with AI Investments and E-commerce Growth
Retail giant Walmart has reported impressive results for the third quarter of 2021, with significant growth across various business areas. The company's investment in artificial intelligence (AI) seems to be paying off, particularly in improving inventory management and delivery speeds.
The e-commerce segment was Walmart's fastest-growing business area, achieving its first profitable e-commerce quarter. This success was driven by strong performances in China, Walmex (Mexico), and Flipkart (India e-commerce). Walmart U.S. store sales rose nearly 5% to $120.9 billion, with same-store sales jumping 4.6%. Sam's Club U.S., Walmart's warehouse store concept, saw sales (ex-fuel) increase by 6% to $21.2 billion.
The growth was underpinned by a rise in the number of transactions at Walmart U.S., which increased by 1.5%, and an increase in the average ticket of 2.1%. E-commerce sales soared 26%, contributing significantly to the company's revenue growth.
Walmart's gross margin edged up by 10 basis points year over year to 24.5% in Q2. The company absorbed some tariff costs for certain items and passed them along to consumers on others, demonstrating its ability to navigate the complex tariff landscape.
Higher-income households continue to be the biggest driver behind Walmart's growth. The company is also developing AI agents to help associates, suppliers, and advertisers, with the first to be launched being Sparky, which will help improve customer interactions on its app.
Walmart's revenue rose nearly 5% to $177.4 billion, topping the $176.16 billion consensus. The company forecasts Q3 sales to rise between 3.75% to 4.75%, and Walmart is looking for full-year adjusted EPS to be between $2.52 to $2.62, up from a prior outlook of $2.50 to $2.60.
Internationally, Walmart sales climbed 5.5% to $31.2 billion, up nearly 10.5% in constant currencies. Despite the positive outlook, the stock's valuation has gotten a bit ahead of itself, and it still has a bit of a balancing act in front of it with tariffs. The stock trades at a forward price-to-earnings (P/E) ratio of about 33 times next year's analyst estimates.
In conclusion, Walmart's Q3 performance reflects a strong focus on e-commerce growth and AI investments, leading to significant revenue growth and a profitable e-commerce quarter. The company's ability to navigate tariff pressures and cater to higher-income households is also noteworthy. However, the stock's valuation suggests a need for careful management in the coming quarters.
