Walmart Winds Up For The Next Move Higher

Walmart Slips After Strong Results 

Walmart NYSE: WMT has been one of the biggest winners from the pandemic and it looks like those tailwinds continue to blow. The company reported its Q3 results blowing past consensus estimates and offering improved guidance but the shares are falling anyway. The market may have been expecting more, it’s hard to say, but what we can say is that the fundamental story in Walmart is still sound. While price action may be showing weakness now, we don’t think it will last for long because the company is still growing and the long-term technical indications are so bullish. In our view, the price action in Walmart is winding up for the next move and we think it will be a move higher.

Walmart Has Strong Quarter Despite Divestiture 

Walmart had a strong quarter on a YOY and two-year basis even with the divestiture of an International business segment. The company reported $140.5 billion in net revenue which is up 4.3% over last year and 18% versus calendar 2019. The revenue beat the consensus estimate by 480 basis points as well and gives evidence of the strength of the consumer. Comps in the U.S. were up 9.9% for the quarter with notable strength in eCommerce. eCommerce sales rose a smaller 8% in the U.S. but are up 87% versus two years ago. Digging deeper, the U.S.comps are up on the combination of higher ticket traffic and ticket averages. Ticket count rise 5.7% while ticket average rose by 3.3%. 

Sams Club also showed some strong growth. The Sams Club unit grew by 13.9% and 25% versus two years ago and it looks like growth will stay in the double-digits for at least another quarter. The company reports membership rose by over 11% marking the 5th quarter of double-digit membership growth. The International segment was the only area of weakness and that due to divestiture. The company reported a 20% decline in net sales that is more than made up by the sale of the business. That impacted net revenue by 670 basis points or more than $9 billion. 

Walmart’s margin is another area of strength despite a minor contraction in gross margin. The company reported a 42 basis point contraction in gross margin that we find remarkable given the fact Walmart is one of few companies not raising prices. Walmart also says labor conditions are easing which should reduce pressure on margin as well. Moving down to the bottom line, Walmart was able to squeak out a 4 basis point improvement in the operating margin that helped drive bottom-line strength. The GAAP earnings fell short by $0.29 but the adjusted $1.45 is up a dime from last year and beat the consensus by a nickel. 

Walmart Guides A Bullish Market Higher 

Walmart adjusted its guidance to assume a slightly higher comp in the U.S. and for earnings to come in a range above both the previous guidance and the analyst’s consensus. In this light, we are expecting to see some bullish analyst activity and for the consensus estimate to move higher. The Marketbeat.com consensus estimate is already well above the current all-time high and assumes about 20% of the upside from the $143 level. 

The Technical Outlook: Walmart Is In A Bullish Triangle 

Walmart is in a bullish triangle and it is a large, long-term triangle at that. This pattern began forming in the wake of the peak pandemic buying spree and could easily lead the stock up by double digits. The triangle alone is worth about $30 or 20% of upside from the all-time high and we think Walmart could go even higher.