Market news and a positive update from Walmart.
Market News
Risk assets remain weak as China and higher global interest rates sapped sentiment. In the US last night, the main equity markets were in the doldrums – S&P 500 (-0.8%); Nasdaq (-1.2%) – as were stocks in Asia this morning: Nikkei 225 (-0.6%); Hang Seng (-1.9%); Shanghai Composite (-1.0%). The FTSE 100 is currently trading 0.6% lower at 7,268. The 10-year Treasury yield drifted back to 4.24%, while gold drifted to $1,892 an ounce, setting the metal up for its fourth weekly drop in a row. Brent Crude trades at $84.60 a barrel, while Uranium continues to buck the commodity trend.
The offshore yuan strengthened briefly after China delivered its strongest ever pushback against a weaker currency, as it sought to boost market confidence. The PBOC fixed the reference rate at 7.2006 per dollar, the largest gap to estimates since the poll started in 2018. Any further measures such as a potential cut to the FX reserve-requirement ratio may prompt yuan bears to trim their short positions, said Mizuho Bank. Meanwhile, earnings reports from China’s state-owned property developers are sending warnings of widespread losses, fuelling concerns that the crisis is expanding.
Concerns about Fed holding rates high are prompting a rethink of what “normal” in the Treasury market will look like. BofA strategists warn about a return of the “5% world” that prevailed before the global financial crisis. BlackRock and Pimco say inflation may remain stubbornly above the Fed’s target. Demographics, the shift away from globalisation, and the fight against global warming also suggest the low rates post-GFC were an anomaly.
UK retail sales fell 1.2% in July, worse than expectations for a decline of 0.6%, as a spell of unseasonably cold weather deterred shoppers. It may also be a sign that consumers are starting to buckle under the weight of soaring prices and interest rates. Sterling trades at $1.2721 and €1.1698.
Source: Bloomberg
Company News
Yesterday lunchtime, Walmart released strong results for the second quarter of its financial year to end January 2024 and once again raised its full-year guidance. However, in response the shares rose fell by 2%, maybe because the market had already discounted a good quarter.
Walmart operates more than 10,500 stores and numerous e-ecommerce websites under 46 banners in 19 countries. In the face of strong competition, the group’s strategy is ‘to lead on price, invest to differentiate on access, be competitive on assortment, and deliver a great experience’. The company’s sales are massive – $611bn in the last financial year.
In the 13 weeks to 28 July, consolidated revenue increased by 5.4% on a constant currency basis to $161.6bn, ahead of the guidance provided by the company of 4.0%.
In the US, comparable sales increased by 6.5% (ex-fuel) to $110.9bn. Growth was made up of a 2.9% increase in transactions (i.e., volume) and a 3.4% increase in average ticket (i.e., price). E-Commerce sales grew 24%, led by pickup & delivery. The group enjoyed strong market share gains in grocery. Sam’s Club, the trade business, generated revenue of $21.8bn, up 5.5% in comparable terms (ex-fuel).
Outside of the US, the international business grew by 11.0% at constant currency to $27.0bn, driven by China and Mexico. The global advertising business grew by over 35%, led by Walmart Connect in the US (+36%).
Gross margin climbed by 50 basis points to 24.0% as the group lapped elevated markdowns and supply chain costs from a year ago. This was partially offset by ongoing mix pressure in grocery and health & wellness. The group kept a tight rein on costs – operating expenses as a percentage of net sales only grew by 33 basis points. Adjusted EPS rose by 4.0% to $1.84, ahead of the market expectation of $1.71.
Free cash flow rose from $1.8bn to $9.0bn during the quarter and net debt fell to $36.5bn. Excess cash is returned to shareholders through dividends and buybacks. During the quarter, the group bought back $485m of its shares, leaving $18.2bn of its $20bn repurchase authorisation. The company also paid out $1.5bn in dividends.
Walmart has provided guidance for the current quarter for sales growth (3.0% at constant currency) and adjusted EPS ($1.45-$1.50). The company has also raised its guidance for the financial year to January 2024 to reflect both its progress so far this year and management’s confidence in continued business momentum. Consolidated net sales are expected to grow by 4.0%-4.5% at constant currency, versus 3.5% previously, while adjusted EPS of $6.36-$6.46 is forecast, versus $6.10-$6.20 previously.
Source: Bloomberg