Earnings report exceeds expectations! Walmart's stock price hits a historic high.

Walmart, the global retail giant, has released an impressive earnings report, benefiting from a strong performance in its e-commerce business. In the fourth quarter, the company's performance exceeded expectations, announcing the acquisition of TV manufacturer Vizio and the largest dividend increase in over a decade.

On Thursday, February 20th, Walmart announced its Q4 performance for the 2024 fiscal year. The company's revenue reached $173.39 billion, surpassing market expectations of $170.35 billion, a 5.7% increase from the same period last year when it was $164.05 billion.

Notably, global e-commerce grew by 23%, with annual revenue exceeding $100 billion. The GAAP earnings per share were $2.03, while the adjusted earnings per share were $1.801, both surpassing the market's expected $1.65.

Due to improvements in its U.S. operations, Walmart's comprehensive gross margin increased by 39 basis points in the fourth quarter. Regarding the retail situation in the U.S. this year, Walmart CFO Rainey expressed a mixed sentiment, acknowledging the possibility of inflation but noting that prices are more stable than three months ago.

Furthermore, Walmart announced a 9% increase in its annual dividend, marking the largest growth in over a decade. The overnight surge in Walmart's stock price reached 5.7%, the largest since November 2022, with a cumulative increase of over 10% this year, outperforming the S&P 500's 4% rise during the same period.

Walmart highlighted its strong performance in e-commerce, attributing the robust quarterly revenue growth to American shoppers turning to the retail giant throughout the holiday season. Specifically, global e-commerce sales saw double-digit growth, propelling the company's quarterly revenue.

In detail, global e-commerce sales increased by 23% year-on-year, surpassing $100 billion in annual revenue. Sam's Club's U.S. business saw a 17% increase in sales, driven by delivery services.

Sam's Club membership revenue showed strong growth, with a 10.0% year-on-year increase, reaching historic highs in total membership and penetration rate by the end of the quarter. Compared to the same period last year, customer transactions in the U.S. grew by 4.3%, although the average customer spending slightly decreased.

As prices in some categories decreased, Walmart's private label products became more popular for being more affordable, gaining popularity in the U.S. and other parts of the world.

Profit growth was further driven by Walmart's advertising business. Compared to other retailers, Walmart has withstood the test of high inflation and actively explored new profit avenues such as advertising sales and delivery services, which are expected to become crucial profit engines for Walmart in the future. The financial report shows that Walmart's global advertising business grew by 33% in the fourth quarter, with Walmart Connect in the U.S. growing by 22%, Sam's advertising business by 11%, and the number of advertisers investing in MAP reaching a historic high.

Analysis indicates that as the company provides more delivery services on each delivery route and sells online advertising and related services, delivery costs have decreased by 20% over the past year. More and more customers are shopping on Walmart's website and app, helping to establish more intensive delivery routes.

Piper Sandler analyst Edward Yruma pointed out that the growth momentum of Walmart's advertising/retail media department is accelerating, with an increasing impact on its long-term profitability.

Expanding Stores, Increasing Dividends, Acquiring Vizio

While many retail companies are announcing cost-cutting measures, Walmart is taking a different approach. In late January, it announced plans to open or expand more than 150 stores in the U.S. over the next five years. Additionally, Walmart plans to upgrade over 1400 existing stores.

In addition to store investments, Walmart also stated that it will raise the average annual salary of store managers to $128,000, with managers eligible for bonuses of up to 200% of their base salary.

Furthermore, Walmart announced the acquisition of smart TV manufacturer Vizio to accelerate the development of its advertising business "Walmart Connect." Walmart will acquire Vizio at a price of $11.50 per share, totaling $23 billion.

Walmart CFO Rainey stated:

The acquisition of Vizio will become a "accelerator" for Walmart's business, which is profitable and growing rapidly. By using televisions, Walmart can not only display ads but also obtain better data to track how customers engage with ads and whether it leads to purchase behavior.

U.S. Retail Situation "Mixed"

As a barometer of the U.S. retail market, Walmart sees the future U.S. retail situation as "mixed," with the slowdown potentially better than previously expected but still not free from deflation risks due to high interest rates. Rainey mentioned:

Customers are still shopping cautiously, with fewer items in their baskets but more frequent shopping trips. The company expects consumer spending to continue to show some resilience for the remainder of the year.

Walmart has abandoned its basic deflation forecast. During the third-quarter earnings call in November last year, Walmart CEO McMillon stated that with general merchandise and major grocery items like eggs, chicken, and seafood becoming cheaper, deflation could be on the horizon. However, Rainey mentioned this Tuesday that deflation now seems less likely. Overall, the possibility of deflation still exists, but prices are more stable than three months ago. The latest US retail data released shows a slight decline in consumer spending enthusiasm this year. According to a report by the US Department of Commerce last Thursday, after seasonal adjustments, US retail sales in January fell by 0.8% compared to the previous month.

Analysts point out that although seasonal factors may exaggerate the extent of economic weakness, the decline in consumer spending (which accounts for about two-thirds of economic activity) will mean weaker economic growth prospects for the US this year compared to 2023. Many economists had previously predicted that rising interest rates and the reduction in savings accumulated by Americans after the outbreak of the pandemic would dampen consumer demand.

Morgan Stanley also noted in its report that US consumer spending will start to significantly slow down in 2024 and 2025.

The driving factors behind the slowdown in consumer growth may be the cooling labor market, which puts pressure on real disposable income, and the further pressure on debt servicing costs due to rising interest rates. It is expected that retail sales will increase by 2.2% YoY in the fourth quarter of 2024, the YoY growth rate of real PCE in the fourth quarter of 2024 will slow to 1.8%, and further decrease to 1.3% in 2025.