1 Big Concern Walmart Investors Have About Next Week

walmart (NYSE: WMT) Stocks have become more attractive lately as investors turn to large, stable companies that can perform well in a wide range of selling environments. The retailer’s shares are up so far this year, compared to a drop of more than 30% at the main competitor Amazonshare price.

That optimism will be tested when Walmart announces its fiscal 2022 first quarter results in just days. This report, due out on Tuesday, May 17, will tell investors a lot about the health of consumer spending trends during the latest spike in inflation. The big question is whether Walmart continues to grow in this rapidly changing retail environment.

Let’s take a closer look.

Image source: Wal-Mart.

Sales trends will be closely examined

Walmart’s latest earnings report contained a lot of good news about the company. Same-store sales increased 6% through the end of 2021, with gains coming from both increased customer traffic and higher average spend.

The chain gained market share during the period, in part because it secured enough merchandise, at low prices, to give it an edge over its smaller counterparts. Average spending was particularly strong, rising 2% after peaking 22% a year ago.

Still, Walmart’s e-commerce segment weighed on overall results. This niche will likely exert more pressure in the first quarter as well, as buyers appear to be moving away from digital spending after two years of intense focus in this area. Amazon recently announced some of its slowest growth to date in e-commerce, which surprised Wall Street. The main concern is that Walmart will report similar weaknesses in the e-commerce division.

The pressure is felt on several fronts

There are also pressures beyond the slowdown in sales. Walmart likely faced soaring costs in areas like transportation and wages. It has also been difficult to maintain low staff turnover in this tight labor market. And the chain could see demand shift away from certain high-margin products, like home furnishings and clothing, as consumers shift to spending on essentials.

WMT Operating Margin Chart (TTM)

WMT Operating Margin Data (TTM) by YCharts

Investors had hoped that Walmart’s profit margin would begin to return to the highs they saw in 2013. But that rebound could take longer and earnings could come under pressure in 2022 due to the combination of slowing growth demand and increased capital expenditure in the business. .

Look forward

Walmart executives could update their fiscal year outlook to reflect the latest demand and cost trends. In the report, this forecast calls for an increase in sales of around 3% after taking into account fluctuations in exchange rates. Profit margins should remain stable as capital spending increases.

A weaker selling environment could convince CEO Doug McMillon and his team to lower the earnings outlook on Tuesday. But the chain is not likely to withdraw the necessary investments in its stores and its online activities. Spending on it lays the foundation for faster sales growth over time.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Demitri Kalogeropoulos holds positions at Amazon. The Motley Fool holds positions and recommends Amazon. The Motley Fool has a disclosure policy.

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