Walmart’s outlook disappoints: ‘we’re encouraged by the momentum’

Shares of Walmart Inc (NYSE: WMT) are in the green today even though the retail giant issued weaker-than-expected guidance for its first financial quarter.

Walmart’s outlook for the future

Walmart now expects to earn $5.90 a share to $6.05 a share (adjusted) this year, including up to $1.30 a share in Q1, as per the earnings press release.

Analysts had called for $1.37 a share for the quarter and $6.53 a share for the full financial year. Still, Cowen’s Oliver Chen (senior retail analyst) said:

There are storm clouds in discretionary businesses. Gross margins were also down due to taking markdowns and promotions. [But] tight labour market is a key positive, low unemployment is a key positive too.

Is it worth buying Walmart stock?

On the plus side, Walmart raised its quarterly dividend by 2.0% this morning to 57 cents per share. Discussing its earnings report on CNBC’s “Squawk Box”, Chen also said:

Advertising growing at 30% for the full year. Lots of progress on curb-side and pickup. So, thinking about Walmart as a tech enabled company is really a key theme.

The Cowen analyst recommends buying Walmart stock here and sees upside in it $180 – up more than 20% from here.

Walmart Q4 financial highlights

• Earned $6.27 billion versus the year-ago $3.56 billion
• Per-share earnings also climbed from $1.28 to $2.32
• Adjusted EPS came in at $1.71 as per the press release
• Revenue jumped 7.3% year-on-year to $164.04 billion
• Consensus was $1.52 of EPS on $159.75 billion revenue
• eCommerce sales went up another 17% this quarter

Did inventories improve in Q4?

Walmart Inc attributed the strength in the recent quarter to quick and aggressive measures it took to address inventory and cost related challenges. The retailer also continued to expand its footprint in “grocery” in the fourth quarter. Cowen’s Chen added:

Walmart’s picking up higher income consumers. That’s something to pay attention to. Inventories were flat, they were up double-digit last quarter. That’s a much better position to be in. So, we’re encouraged by the momentum.

An 8.3% annualised growth in U.S. comparable sales in Q4 also topped FactSet consensus. Year-to-date, Walmart stock is up 3.0% only at writing.