While Its Q4 Profits Were Strong, Walmart's Cautious Outlook Hits The Shares

While Walmart reported better-than-expected profits during the crucial holiday-season quarter on Tuesday, it provided a disappointing outlook as inflation weighs on consumers as they prepare for the holidays.

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There was robust growth in the grocery sector in the just-finished quarter for the world's biggest retailer which was offset by weakness in the discretionary sector.

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According to Doug McMillon, the chain's chief executive, the company expects "stubborn inflation" in food prices as executives have acknowledged that grinding price pressures are hitting some consumers, which has diminished prospects going forward.

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McMillon said more middle- and high-income shoppers were coming to the chain because of its expanded e-commerce and delivery business.

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In a recent earnings conference call with analysts, McMillon expressed his satisfaction with the company's performance across income cohorts, including at the higher end of the income distribution.

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There were $6.3 billion in profits for the quarter ending January 31st, a 76 percent increase from last year's quarter. The company's revenues increased by 7.3% to $164 billion in the third quarter.

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But after the company's projections for the coming quarter and year missed analyst expectations, shares plunged, suggesting a greater hit to sales from price-conscious consumers.

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As the largest private employer in the US, Walmart has a reputation for being one of the most reliable chains in an inflationary period due to its reputation for providing value to its customers.

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Grocery sales and other consumables, such as pet food and personal care items, performed particularly well in the company's fourth quarter.

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As fuel prices have risen and household staples like food and groceries have become more expensive, consumers have been more willing to spend more on items like toys, electronics, and home goods, which have higher profit margins. However, as shopping expenses rise, these items have become less sought after.

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The company's results were also impacted by higher labor costs and excess inventory, although the company said it made progress on these issues.

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McMillon has praised the store staff for their quick and aggressive efforts to address the inventory and cost challenges that the company faced last year, according to the earnings press release.

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For the current year, the company expects to earn between $5.90 and $6.05 per share, with much lower comparable sales growth in the US. Profits per share were projected at $6.50 by analysts.

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Aside from this, Walmart also sees a net sales growth of at most three percent, which is less than half the growth in revenue over the past year.

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In a statement by Neil Saunders, managing director of GlobalData, Walmart's strong fourth-quarter results demonstrated that the company "remains the leader of the pack in retail."

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However, Saunders said that the underperformance in discretionary categories indicated that the organization still had a lot of work to do.

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"Walmart's problem with general merchandise is that it behaves and thinks like a grocery retailer - merchandising in a very functional manner without many styles," Saunders said.

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Walmart has unveiled a handful of remodeled stores, but he said it must commit to extending the remodel much further in the year ahead if it wants serious traction in general merchandise.

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Walmart shares fell 3.3 percent to $141.57 in premarket trading.