Walmart sees weaker 2023 results, cautious on economic outlook

Walmart Inc. struck a cautious note in its economic outlook for 2023 on Tuesday, as the retail bellwether forecast full-year earnings below estimates and warned that cautious spending by consumers could pressure profit margins.

Shares of the world's largest retailer fell 4.6% to $139.75 in premarket trading, as the company continued to battle price hikes from many of its product suppliers in a high-inflation environment.

Higher U.S. consumer prices, amid loftier costs for rental housing and food, have raised fears the U.S. Federal Reserve could further lift borrowing costs to cool domestic demand, leading to an economic downturn in the second half of the year.

"There's still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we've not been in a situation like this where the Fed is raising at the rate that it does," Chief Financial Officer John David Rainey told Reuters.

"So, that makes us cautious on the economic outlook because we simply don't know what we don't know."

Walmart forecast earnings of $5.90 to $6.05 per share for the year through January 2024, compared with analysts' estimates of $6.50 per share, according to Refinitiv IBES data.

Investors in Walmart, which operates more than 5,000 stores in the United States, have been keenly eyeing the retailer's efforts to negotiate better prices from its suppliers and ward off competition from rivals such as Target Corp. whose products are relatively pricier.

Inflation-squeezed consumers are increasingly shifting toward buying more food and consumables from general merchandise, which Rainey said he expects to continue this year and be a drag on margins.

This has hit Walmart's consolidated gross profit rate, which fell 83 basis points in the holiday quarter, primarily due to markdowns and sales of lower-margin products.

Still, Walmart reported strong demand in the quarter ended Jan. 31, posting total revenue of $164.05 billion, a 7.3% increase from last year. Analysts had estimated revenues of $159.76 billion. Comparable sales in the United States rose 8.3%, excluding fuel, helped in part by higher prices and e-commerce sales.

Adjusted earnings per share came in at $1.71 for the quarter, handily beating the $1.51 average expectation.

The company also raised its annual cash dividend by about 2% to $2.28 per share for fiscal 2024.