This represents an opportunity for Walmart (WMT) as it can use its sheer size and economies of scale to protect patrons against higher prices.
Investors have been slow to adapt WMT as a winner in the current environment. The stock has slipped 10% over the past four months.

A little deeper dive suggests that the stock is cutting out a wider consolidation pattern. Is this setting up as a nice buy for investors looking for value names?

WMT Monthly Chart:

Walmart reported Q4 earnings of $1.53 per share, three cents better than analyst expectations. Revenues rose 0.5% y/y to $152.9 billion. This number was negatively impacted by approximately 10% in divestitures, primarily on the international side. Net sales growth would have been 7.6% excluding divestitures.

Q4 United States comps were +5.6% compared to prior guidance of “around +5%”. The 2-year comp was 15%, down slightly from +16% in Q3 and inline with retailers like Target, Amazon, and Kroger.

WMT stated that it continued to gain market share in food and consumables in the U.S..

Inventory increased 26% globally as it was impacted by higher cost of goods, product mix, and in-transit shipments. This figure may raise a red flag on the surface but it suggests WMT can meet future demand and avoid rising transportation costs.

WMT reiterated key financial targets for FY23. It sees revenues increasing 3% in constant currency terms. Management sees higher growth in the second half of 2023. This does give some pause as investors are always cautious around backloaded growth expectations.

Q1 operating income and EPS is expected to be down low double digits to low teens as it faces tough comps due to stimulus effects from last year. Investors will need to see through this one off impact.

WMT expects comp sales growth, ex-fuel, in the U.S. to be “slightly above +3%”. The company expects EPS increasing in the mid-single-digits. This is a positive given the rising costs around covid and transportation. Capacity Expenditures will be at the upper end of 2.5-3.0% of net sales with a focus on supply chain, automation, customer-facing initiatives, and technology.

The company expects the gross margin rate to increase due to pricing, mix and new business initiatives. Peers will be pressured to meet this margin expansion outlook.

WMT stated that it works closely with its suppliers to manage inflation and has discovered a few places where it can roll back prices. The Q4 margin performance was proof that WMT can keep price gaps in a range that customers would be able to accept.

The sheer size of WMT allows it to weather the storm of rising prices. Bulk buying from suppliers gives it an advantage over peers. The gross margin expansion in a tight margin business is impressive. Pressure will be on Target (TGT) when it reports March 1 and Kroger (KR) when it reports in early March (a date has not been confirmed).

WMT trades at 19.9x forward earnings compared to TGT at 16x and KR at 13x. We will see if this premium is deserved.

WMT has thrown down the gauntlet and other big box and grocery chains will have to keep up. If they do not, then WMT would have earned that premium as it proves it is positioned to perform in a tough back drop.

With shares trading at the low end of a consolidation range it may set up as a good entry for investors looking for steady performance from market leaders.