You May Like Walmart’s Results, But We’ll Stick With This Portfolio Holding
Stronger comp sales point to even greater consumer wallet share gains.
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Walmart WMT reported its October-quarter results Tuesday. They came in ahead of market expectations led by U.S. comp sales of 5.3%, which were well ahead of the 3.8% consensus estimate.
The company benefited from share gains in U.S. grocery as shoppers continued to trade down. Per Walmart, 75% of share gains came from households earning over $100,000 and it also made nice inroads in digital shopping and digital advertising, up 27% and 28% compared to year-ago levels.
That combination is lifting WMT shares Tuesday, but comparing those figures against Costco’s COST recent string of monthly revenue reports shows Costco is taking an even larger bite of consumer wallet share. For the three months that correspond to Walmart’s October quarter, Costco’s adjusted year-over-year comp sales were:
August 2024: +6.7%
September 2024: +9.3%
October 2024: +5.8%
Sizing up those figures against recent monthly Retail Sales reports led us to bump our COST price target to $975 from $950 last week, and what we see compared to Walmart’s October quarter only adds to our confidence in making that adjustment.
Walmart Reaffirms Our Focus on the Dollar
One headwind Walmart called out today was something we discussed recently — the dollar’s move higher and currency fluctuations. According to Walmart, currency fluctuations negatively impacted its October-quarter results, reducing reported sales growth by 70 basis points and operating income growth by 160 basis points.
Walmart management said, if current rates persist, the company will see a headwind of ~100 basis points for sales and 200 basis points for operating income in the current quarter. This reaffirms our decision to watch the dollar closely as it relates to holdings like PepsiCo (PEP), Elastic (ESTC), and others that have meaningful exposure outside the US.
The 2024 Holiday Shopping Season
For its current fiscal year, which ends in January, Walmart now sees total revenue up 4.8%-5.1% year over year, a faster pace compared to the 3.75%-4.75% it forecasted in mid-August. Parsing the figures compared to Walmart’s results last year and so far this year, management’s forecast suggests revenue for its final quarter of the year will be up 9%-10% compared to the October 2024 quarter and up 5.8%-6.9% year over year. That’s a brighter outlook than many of the current holiday shopping forecasts, but let’s remember Walmart, much like Costco, is well positioned to capture shopping dollars and traffic from grocery.
As more retailers report this week and next, including Target TGT, TJX Companies TJX, Williams-Sonoma WSM, BJ’s Wholesale BJ, Macy’s M, Ross Stores ROST, Kohl’s KSS, and Nordstrom JWN, we’ll have a far better indication of prospects for the holiday shopping season. We continue to see ourselves well positioned with Costco as well as Amazon AMZN.
At the time of publication, TheStreet Pro Portfolio was long COST and AMZN.
