Walmart offered a quarterly soft outlook, but I remain convinced that Walmart and defensive consumer staples names will gain market share during the U.S. 2023 Recession
Walmart $Walmart(WMT.US$reported strong earnings in the fiscal fourth quarter, with adjusted earnings of $1.71 per share, beating analyst estimates of $1.52. The company's sales also exceeded expectations, with a 7.3% increase to $164 billion. However, Walmart's CFO John Rainey expressed caution for the current fiscal year due to rising economic uncertainty. The company is concerned about the impact of rising interest rates and falling savings rates on consumer spending, as well as the possibility of a recession, layoffs, and household income fluctuations.
While the company saw increased grocery sales, but food inflation impacted its overall margin and bottom line. Higher-income consumers accounted for almost half of Walmart's market share gain, with many seeking better deals on groceries. However, Walmart faces downside risks in the form of foreign exchange impacts, pharmacy headwinds, slowing food inflation or deflation, and increased competition in its Sam's Clubs and Walmart International segments. The company's recent earnings report was strong, but it remains cautious about the future given economic uncertainties.
Despite the cautious quarter, I remain optimistic about Walmart's positioning in today's macro environment. I would use drawdowns as accumulation opportunities. I would allocate to WMT at 138, 127, and 116 with 3 different tranches, the largest one being at 116 if it gets there (all powerful support regions). I see upside potential for Walmart to revisit 153/share or higher within a 6-month time horizon (now 147).
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