Walmart (WMT) is scheduled to report results of its first quarter before the market open on Tuesday, May 17, with a conference call scheduled for 8:00 am EDT. What to watch for:
GUIDANCE: On July 25, Walmart announced that it is cutting its Q2 earnings guidance, forecasting adjusted EPS to decline 8%-9% from last year’s levels. The guidance implies a range of $1.62-$1.64 from last year's $1.78 and is well shy of the $1.81 consensus. The announcement marked the second time this year that Walmart reduced its outlook. Walmart also updated its FY23 earnings projections with expectations of a 10%-12% decline in EPS. This compares to its prior guidance of “flat” in the May update, which was also a downgrade from the original view of up 5%-6%. In May, Walmart forecast that Q2 would be “flat to up slightly” vs. its prior projections of “up low to mid-single digits." Walmart attributed the lowered guidance to pricing actions required to improve inventory levels. Walmart’s announcement also echoes a similar “inventory right-sizing optimization” announced by Target (TGT) on May 7, when it released a plan of actions to implement additional markdowns, remove excess inventory and cancel orders.
CUT GUIDANCE A 'CLEARING EVENT': Stifel analyst Mark Astrachan thinks the pre-announcement in part reflects heightened inventories and a general weakening of U.S. consumer spending and he reduced his FY23 and FY24 EPS estimates. However, he thinks the warning could be a clearing event for the stock and sees "more upside than downside from afterhours trading levels," Astrachan added.
POTENTIAL WARNING SIGN FOR AMAZON: Walmart's profit guide down amid expectations for increased markdowns and general merchandise margin pressure in the second half is a "potential warning signal" that raises risk around Amazon's (AMZN) first-party merchandise margins, argues Morgan Stanley analyst Brian Nowak. The analyst, who thinks Amazon can take steps to offset some of this pressure, calls discounting "an incremental headwind to monitor."
LAYOFFS: After the company lowered its profit outlook, Walmart said it was cutting 200 corporate employees, The New York Times' Sheera Frenkel and Michael Corkery reported, citing a person briefed on the matter. In a statement, company spokeswoman Anne Hatfield said Walmart was "updating our structure and evolving select roles to provide clarity and better position the company for a strong future." She added that the company was investing in other areas, including e-commerce and technology. According to The Wall Street Journal, Walmart started notifying employees in its Bentonville headquarters and other corporate offices of the restructuring, which affects various departments including merchandising, global technology and real estate teams.
POTENTIAL STREAMING DEALS: Walmart has held talks with Paramount (PARA), Disney (DIS), and Comcast (CMCSA) about including streaming entertainment in its membership service, The New York Times' Benjamin Mullin and Brooks Barnes reported. According to three people with knowledge of the discussions, the retail giant is exploring bundling a streaming service into its Walmart+ membership program and is weighing which movies and TV shows would add the most value to its membership bundle.