Consumer Health Will Be The Focus Of Walmart Investor Day

As part of the company's investor day scheduled for Tuesday and Wednesday this week, Walmart WMT +0.71% will present its latest financial information, but the fact that there is no news may prove to be a relatively positive development.

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As one of the largest retailers in the world and a key indicator of how consumers are doing as a result of Walmart's size and scale, what its customers buy-or don't buy-is likely to generate significant interest.

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However, if the retailer's earnings meet turns out to be a less headline-worthy event than last year, investors will probably feel less worried about the meeting after a year of big guidance cuts and worrying announcements from retailers.

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When Walmart announced a lowered forecast for the company the month before in June 2022, the company's annual shareholder meeting proved to be the calm before the storm. It was ultimately left to follow in the footsteps of fellow big box store Target (TGT) in July by lowering its guidance in the same manner as that of Target (TGT). Target's cut in guidance sparked an industrywide selloff in July and triggered its own lowered outlook as well.

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Amidst weaker guidance for the future, and conflicting data points on many of the aspects of Walmart's business, Walmart once again finds itself in the shadow of weak guidance.

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It is still, however, a much more manageable situation than it was before.

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According to Wells Fargo analyst Edward Kelley, Walmart remains a strong idea in an uncertain backdrop, despite the fact that it feels early for a guidance hike. We expect to hear about a promising start to the quarter, since the first quarter looks to be shaping up well.

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Walmart did hold up better than many of its peers during what was considered a brutal economic year of 2022, and since the shares of Walmart have fallen by just over 2%, compared to the SPDR S&P Retail ETFXRT +0.02% (XRT) that declined 18%. However, since the beginning of 2023, the stock has only gone up 4%, trailing both the S&P 500SPX 0.00% and the XRT, as more confident investors stepped out of the safe haven positions they held during the market's turmoil.

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Even so, Oppenheimer's Rupesh Parikh is equally bullish on the stock's chances of continuing to rise, calling any postmeeting sell-off a good opportunity to buy the stock—a possibility given that analyst days have over the years been largely a mixed bag in terms of moves in the stock.

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As for Walmart's conservative outlook, he still believes that the company will remain on a conservative path: “Overall, we expect a positive tone from management as they discuss the underlying drivers of the business, and we believe the company will reiterate its fiscal 2023 guidance and long-term goals for a 4%-plus increase in sales and an increase in operating income that will outpace the increase in sales.”

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This strategy clearly makes sense, since the company will be forced to lower investor expectations abruptly mid-2022, which will be a challenge for other retailers as well. It is better to continue to provide under-promising results and then finally to deliver more.

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Despite all of the hope, the U.S. still has a good chance of not going into a recession, and many higher-income Americans are the ones who have been laid off the most. As Walmart's core customers have been adversely affected by stubbornly high inflation, particularly as the generous federal food aid program from the pandemic era ends, making essentials more expensive for those who are in need.

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As a result, Steven Shemesh, a senior equity analyst at RBC Capital Markets, argues Walmart is in a strong position in terms of operating. The prices of core consumer goods for Walmart and Target were compared in March and he found that in March, the basket of core consumer goods for the former fell 4.1% from February while for the latter, the basket rose 2.9%.

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The principle underlying the differences between Walmart and Procter & Gamble PG +0.61% is that Walmart run generous promotions for Procter & Gamble PG +0.61% and Clorox CLX –1.17%'s (PG) detergents Tide and Clorox CLX –1.17%'s disinfecting wipes Clorox CLX –1.17%'s (CLX).

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This kind of promotion would normally not be a reason for us to try to draw any real conclusions from it, but given that the promotion is large (seemingly nationwide) and is targeting two of the five most popular products in the home care category, we might have to consider it a bit more tactical...The data suggests Walmart traffic has held up in recent months, so it is likely that it is an offensive move rather than a defensive one.

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Walmart's commitment to pricing may make things tougher for its competitors since they are unable to pass higher costs on to their own customers as long as Walmart stays laser focused on pricing.

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The Walmart report could provide crucial insight for a sector still struggling under the grip of inflation-and with retail sales in a seesaw, along with key retail issues that Walmart addresses, such as the state of both freight and labor costs as well as commodity costs.

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It may not be surprising, then, that some investors feel that stock markets should be boring after a tumultuous year like 2022.