When the U.S. Census Bureau released on Wednesday morning its report on advance monthly retail sales for April, the agency lowered its sales decline for March from 1.0% to 0.7% and reported a month-over-month increase of 4% in retail sales. April sales are 1.22% above sales for April 2022. The sales increase is likely due more to higher prices than to higher volume.
For grocery and general merchandise retailers, sales rose 4.8% and 5.5%, respectively, year over year. A lot of that increase is going directly to companies that make packaged food products. Coca-Cola, for instance, raised prices in the first quarter, and profits increased by 12%. PepsiCo raised prices by 16% and increased its profits by 18%, even though sales volume fell. (These are the biggest grocery store chains in America.)
Where does that leave Walmart Inc. (NYSE: WMT)? The country’s largest employer and its biggest retail store operator will report first-quarter earnings before markets open on Thursday, and investors are likely to find out that Walmart has struggled to meet even a much lower bar. Rising producer costs plus higher logistics costs could yield a nasty surprise.
Of 42 analysts covering the Dow Jones industrials mainstay, 31 have a Buy or Strong Buy rating. The other 11 have rated it at Hold. At a recent price of around $151.50 a share, the upside potential based on a median price target of $65.00 is about 8.9%. At the high price target of $180.00, the upside potential rises to 18.8%.
The consensus first-quarter 2024 revenue estimate is $147.84 billion, which would be down 9.6% sequentially but up 5.4% year over year. Adjusted earnings per share (EPS) are forecast at $1.32, down 23.0% sequentially and 1.2% higher year over year. For the full fiscal year ending next January, analysts expect Walmart to report EPS of $6.14, down 2.4%, on sales of $628.54 billion, up 3.7%.
It appears that analysts expect Walmart either to increase traffic (and, hence, more sales) or to somehow get producers like Coke and Pepsi to play more nicely. Yet, only a drop in sales is likely to persuade packaged foods producers to cool it with the price hikes.
Competitor Target Corp. (NYSE: TGT) reports first-quarter results early Wednesday. Analysts estimate sequential declines of more than 19% in sales and 5% in EPS. Adjusted EPS are forecast to rise by more than 40% year over year, while sales are expected to rise by less than 2%. It hardly seems possible that Target is going to post such a large increase in EPS with such a small increase in sales. The full-year forecast for Walmart seems more likely to reflect the reality of worries about inflation and consumer spending for the rest of this year.
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