Walmart Q3 2023 Financial Report Review: Performance in Q3 Was Moderate

On November 16th, Walmart released its Q3 financial report. Barclays also issued a commentary on Walmart's Q3 financial report on the same day, stating that the performance in the third quarter was moderate, with negative factors overshadowing positive trends. They emphasized the need to focus on execution, sustainable sales, and performance improvement.

Stock Rating: Overweight

Closing price (at the time of the preview release):$156.04 (November 16, 2023)

Current closing price: $155.69 (November 30, 2023)

Barclays target price: $167

In Q3, WMT achieved growth in comparable sales, with a slowdown in the second half of October but a rebound in November. Despite a decrease in inflation, the company still managed to meet its target of returning to previous sales growth rates, with market share and unit scale increasing. Sales and traffic trends were encouraging, and there were signs of stability and improvement in general merchandise. Promotional activities gradually resumed, with higher vendor participation. Gross margin commentary was generally consistent. Although SG&A expenses increased, this may be a temporary factor, and the company is still expected to achieve long-term algorithmic growth. Overall, WMT is expected to achieve balanced sales and profit growth in Q4, with opportunities for incremental profits.

In Q3 2024, WMT achieved a comparable store sales growth of +4.9%, with a slowdown in the second half of October but a rebound in November, indicating broad-based strength. Even with cooling inflation, the company still managed to meet its target of returning to previous sales growth rates, which resulted in an increase in market share and unit scale. Sales volume has increased in some food categories at Walmart, while general merchandise also showed positive performance. Price factors drove this trend, mainly through promotional activities. Foot traffic at Walmart's US stores has improved over the past four years, supporting LSD+ growth in Q4. Overall, WMT is expected to achieve balanced sales and profit growth in Q4, with opportunities for incremental profits.

Walmart's general merchandise comparable store sales remained similar to the previous quarter, which should be considered positive given weaker demand in these categories. Walmart performed well in automotive and hardware, saw improvements in apparel and toys, maintained stability in home goods, but had weaker performance in electronics. Overall, large-ticket shopping remains the weakest area, consistent with Barclays' predictions.

Price reductions and rollback promotions grew by 50% YoY, with more vendors participating. Gross margin commentary was generally consistent, with product mix being a key factor. GLP1 remains an important revenue growth driver but has very low profitability margins. Overall, everyday and luxury categories were supported by higher levels of discounting, with vendors testing price elasticity. While GLP1 contributed to revenue, the profitability margins were low, and other categories are gradually cooling off, requiring the company to find new profit points.

High SG&A expenses were a significant issue, but more temporary in nature. Key factors in Q3 included additional legal costs, wage levels and sales mismatch, higher incentive measures, and extra rebuilding projects, which led to a decline in operating profit growth. Legal costs and rebuilding projects were factors that the company had not considered in its forecasts.

Walmart's Q4 and future outlook guidance shows a total sales growth of 3.5%, with US region growth in the range of +2%, and better performance in international business. The range of EPS includes high single-digit EBIT growth in line with normal algorithms. The FY25 outlook is expected to be consistent with this. The company expects to offset neutral or negative pricing through increased sales volume and market share by achieving 3-4% revenue growth, while also leveraging strong international performance and developing high-margin niche markets, which can still support EPS within the range of $7-7.50.