Is Walmart Stock A Buy Right Now After Earnings Beat Despite Slashing Profit Outlook?

The retail giant Walmart (WMT) employs more people than any other company in the world. The Dow Jones stock index has provided investors with substantial gains for a long time. Walmart recently posted an earnings beat despite its ongoing battle with online retail giant (AMZN).

It’s no secret that Walmart makes a lot of money. As of the fiscal year 2021, it totaled $559 billion. Even though sales increased by 6.7%, the company’s size is both a strength and a weakness. It is challenging for a retail company of this size to achieve significant growth.

Even though Sam Walton started the company in 1969, the discount retailer is constantly innovating., including its online grocery sales, has been performing exceptionally well, contributing to the overall growth of e-commerce. However, the company still relies heavily on sales from physical locations. Meanwhile, through its Whole Foods chain, Amazon has established a presence in traditional brick-and-mortar retail.

Is Walmart Stock A Buy Right Now After Earnings Beat Despite Slashing Profit Outlook
Is Walmart Stock A Buy Right Now After Earnings Beat Despite Slashing Profit Outlook

The stock price of Walmart dropped significantly on July 25 after the company issued a profit warning. An 11%-13% decline in adjusted earnings per share was predicted for the full year, down from a prediction of a 1% decline in May.

The company cited “pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S.” as the reason for the downward revision of its forecasts.

“Food inflation is double-digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” Walmart said in a statement.

The company also reported success in cutting back on stockpiles, adjusting prices to account for inflation and the price of materials used in the production process, and decreasing the overhead associated with warehousing a surplus of shipping containers.

Walmart reported earnings per share of $1.77 on August 16 after issuing the warning. This was better than the $1.62 predicted by market analysts. Sales of $152.9 billion also surpassed projections.

This increase in sales can largely be attributed to the pricing strategy of responding to rising costs by charging customers more. Walmart also gave signs that it is starting to manage its stock levels.

Executive Vice President and Chief Financial Officer Doug McMillon stated, “The actions we’ve taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery, put pressure on profit margins for Q2 and our outlook for the year.”

On Tuesday, Walmart executives told analysts that the company had canceled orders totaling billions of dollars in order to bring inventory levels in line with projected demand. Walmart reported that “mid-to-higher-income customers” are flocking to its stores, leading to a surge in revenue despite the fact that it now sells fewer products at higher prices.

The company has also revised its forecast, saying it expects adjusted EPS to fall by 9-11 percent for the full year. Walmart anticipates 5% Q3 net sales growth and a 9%-11% Q3 adjusted EPS decline.

Is Walmart Stock A Buy?

For a long time now, Walmart stock has not been among the market leaders. It underperformed the S&P 500 by a wide margin in 2021 but is now showing gains in 2022. But the profit growth at Walmart is below the 25% mark sought by CAN SLIM experts. A correction is gripping the market as a whole. For the best returns, stockholders should look to high-performing companies like those featured on the IBD 50.

The stock market is currently not a good time to invest in Walmart. The stock is still trading at significant discounts to its recent buy point and year-to-date highs. In addition, Walmart stock is not likely to be a huge winner because of the company’s unimpressive fundamentals.

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