With many companies pointing to weaker consumer spending as a headwind, all eyes are on Walmart’s (WMT) second-quarter earnings on Thursday, August 15. Michael Lasser, hardline and broadline stores and grocery retail analyst at UBS in the US, joins Market Domination to analyze what investors need to know before focusing on Walmart’s earnings report.
“We expect overall consumer growth to remain consistent. It’s important to remember that Walmart primarily sells groceries and other household products and is gaining market share, so what Walmart has experienced will be a little different than what other retailers have experienced,” Lasser explains. He expects alternative profit areas like advertising and membership fees to grow “very quickly” since they’ve driven the stock price up so much recently. He also expects Walmart to raise its full-year guidance, adding, “All of this means the bull market for Walmart is intact and will likely support the stock from here on out.”
He notes that Walmart will likely benefit as consumers continue to face inflationary pressures, as the company is seen as offering the “best value in retail.” As food continues to be expensive, consumers will be more likely to rely on Walmart for their reasonably priced grocery shopping. Lasser explains that Walmart sells one in every five groceries in the U.S. and will benefit from the trend toward home-cooked meals.
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This article was written by Melanie Riehl
Video transcript
While other companies have pointed out in recent quarterly earnings calls that consumers are spending less, Walmart will try to ignore that trend when it announces second-quarter results next week, and our next guest believes the retailer will stand out in the process.
Joining us now is Michael Lasser, analyst for UBS US, hardline and broadline, and food retail.
It’s nice to see you.
So Walmart earnings are next week, you know, before that print event, Michael, uh, nice run for the shares, which are already up about 30% this year.
What, what do you expect to hear?
We expect a response from consumers that reflects a consistent overall opinion, given that Walmart primarily sells groceries and other household products.
And it is gaining market share.
So the experience we have will be a little different than what other retailers have had.
We also expect all alternative revenue streams such as advertising, third-party marketplace fees, membership fees, logistics services and data monetization to continue to grow very rapidly.
This is a key element of the story.
This is one of the reasons why Walmart stock has risen so much recently. We also expect the company to raise its guidance for the final quarter.
The company said it expects to be at the high end or above its full-year EPS guidance.
And we believe the company will take this as an opportunity to raise its full-year earnings forecast.
All this means that the bullish view on Walmart remains and is likely to support the stock after a review.
Hi Michael, when I look at the performance of the various sectors in the S&P over the last month, I notice that retail in particular is down almost 17%.
It’s one of the biggest laggards in the S&P. To me, that’s a little bit of a reflection of the consumer crisis that you mentioned in your first answer here.
But I just wonder what exactly makes Walmart different when we’ve heard from people like us in this space that even McDonald’s says Walmart customers are having problems. Why shouldn’t Walmart customers be having problems?
So Walmart undoubtedly faces some challenges on the consumer side, but Walmart benefits from those challenges because it is perceived as being one of the best value companies in retail.
In addition, eating out has become very expensive.
So there is a shift from eating out to eating at home, even though Walmart accounts for one in five US grocery purchases, making it the largest single player in the grocery market.
The company has benefited from this trend.
So these are some of the reasons that make Walmart a little different from you.
You are absolutely right when you say that it has been challenging for retail so far, to say the least.
This year we expect this to continue at least until the end of the year.
This is not only due to the very episodic nature of consumer trends, but also because consumers are becoming more promotional and aggressive in response, which risks putting their margins under pressure.
All of this means that you have to be very selective in choosing stocks if you want to invest in the retail sector at present.
