Walmart's strong performance may already be accounted for

Walmart's earnings may add fuel to a rally that propelled its shares to record highs or spook investors looking to justify its pricey valuation.

Walmart is getting ready to release its first-quarter financial results. The primary reason why Americans spend so much money online is to get goods at lower prices. Amazon and recent startups like Temu from PDD Group are fierce rivals to Walmart, particularly in the online space, where they both provide inexpensive goods including electronics, apparel, and personal hygiene products. Compared to the S&P 500's 9% gain, Walmart's stock has increased by 15% thus far in 2024, putting more pressure on the business to deliver impressive outcomes.

The market valuation of Walmart's shares is currently higher than it has been over the last ten years on average. Based on LSEG statistics, this implies that investors expect robust profit growth. Wall Street anticipates Walmart to report a 6% increase in net income for the first quarter that ends on April 30, according to LSEG. 52 cents per share is predicted to be the highest earnings per share, according to Walmart's February projection. However, Walmart is facing challenges due to its higher-than-average inventory levels. Walmart's general merchandise category achieved $114 billion in sales in the year that ended in January 2024, which accounted for 25% of the company's overall revenue.

Based on LSEG statistics, Walmart replenished its inventory at a slower rate than some of its rivals in the fiscal quarter that concluded on January 31. Based on LSEG data for their most recent fiscal quarters, Costco and Kroger have both shown better inventory turnover than Walmart. Excessive stock levels could put Walmart's profit margins at risk by driving up expenses. Walmart declared in February that it was optimistic as it began the new fiscal year and that its inventory was in good condition.

American spending plans for non-essential items like clothing are still not strong compared to 2021, according to Deloitte's surveys on consumer demand. Art Hogan, from B. Riley Wealth, thinks Walmart's stock will go up if the company exceeds revenue and earnings forecasts on Thursday.