Walmart Q1 preview: Where next for Walmart stock

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Josh Warner
By : ,  Market Analyst

When will Walmart release Q1 2022 earnings?

Walmart will release first quarter earnings before US markets open on Tuesday May 17.

 

Walmart Q1 earnings preview

Walmart is set to report slower sales growth and a drop in earnings when it releases results this week. Walmart’s stores reaped rewards during the pandemic as it was able to remain open as an essential retailer and it has also seen rapid growth of its online offering. The pandemic-induced boom is now unwinding and resulting in slower topline growth for Walmart in both the US and overseas, as well as for Sam’s Club, while earnings are set to fall as they come up against tough comparatives and squeezed by rising costs.

Comparable sales in the US are forecast to rise 1.9% in the first quarter, which will mark a severe slowdown compared to 2021 when quarterly growth came in between 5.5% to 9.9%. Total revenue is forecast to increase by just 0.8% from last year to $139.3 billion.

Adjusted operating income is expected to suffer its first year-on-year drop in over 12 months as it comes up against tough comparatives in the first half. Analysts expect this to fall 12.6% to $6.0 billion in the first quarter. Adjusted EPS at the bottom-line is expected to follow over 12% lower to $1.48 from $1.69 the year before.

Notably, Sam’s Club is the only segment of the business expected to report a mild rise in operating profit in the quarter of 0.3%, but this will not be enough to counter a 6% fall from Walmart US and a steeper 20.5% drop from its international arm.

Markets will also be looking to the outlook to see if there have been any changes since it issued its initial guidance that is targeting 3% growth in both comparable US sales and overall revenue and mid-single digit growth in EPS (or 5% to 6% when divestures are excluded).

Currently, Wall Street has pencilled-in slightly faster growth across all metrics, suggesting markets believe Walmart has been conservative given the uncertain outlook.

That reflects the fact that Walmart is expected to prove one of the most resilient retailers in the tough environment this year. Its sheer scale and size, twinned with its buying power, should allow it to deal with higher costs compared to smaller rivals, and this in turn puts in a better position to keep prices down and offer value to customers at a time when inflation is running rampant and people are tightening their purse-strings. It also has newer, faster-growing and higher-margin businesses that could provide significant new catalysts for the business at a time when its core commerce business is operating in a challenging environment, such as online advertising, subscriptions, last-mile delivery and financial services. Success in areas like this could potentially allow Walmart to absorb rising costs in its retail business and allow it to undercut rivals on price.

Notably, this will be the last set of earnings before John Rainey takes up his role as Walmart’s new executive vice president and chief financial officer on June 6. He is joining from PayPal, where he led the payments giant’s finances and its customer operations centres. He was also previously VP and CFO at United Airlines.

 

Where next for WMT stock?

Walmart shares soared to new all-time highs of $160 last month but has since fallen back over 7% to trade closer to $147.50 today.

Trading volumes have steadily risen over the past 30 days, but the rise has accelerated during the current downtrend to suggest the downtrend could gain momentum and push the stock back toward the 2022-low of $133. In the meantime, the $145.80 level of resistance seen between December and March should be treated as the initial floor, which will open the door to $141.70 if it fails to hold.

On the flip side, the first upside target that needs to be recaptured is the 50-day sma at $150 before it can eye $155 and then the all-time high of $160. We saw the 50-day moving average surge back above both longer-term metrics last month to provide a bullish signal and the fact the 100-day sma is on the cusp of returning above the 200-day sma could reinforce this, although this has not translated to a higher share price so far.

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