Morning Note: Market news and an update from Walmart.

Market News

A news conference after talks between Ukrainian President Volodymyr Zelenskyy and President Donald Trump’s Ukraine envoy was cancelled yesterday at the request of US officials, a Kyiv official said. Emmanuel Macron wants the EU to boost its military autonomy and alleviate reliance on the US over the next five to 10 years. British military chiefs advised Keir Starmer to accelerate plans to increase defense spending

Alberto Musalem said monetary policy should remain “modestly restrictive” until it’s clear inflation is on track to the 2% target, while Adriana Kugler sees “some way” to go to reach that goal. Raphael Bostic said there’s greater uncertainty but he still expects two rate cuts this year.

US equities fell last night – S&P 500 (-0.4%); Nasdaq (-0.5%) – after Walmart posted a weaker than expected outlook. The 10-year Treasury yields 4.48%, while gold drifted back to $2,920 an ounce. Brent Crude trades at $76 a barrel as OPEC+ look set to delay a production hike planned for April. Iron ore rose for the fourth session in a row.

Chinese technology stocks jumped the most in three years, boosting equities across Asia, after optimism toward the sector got a boost from earnings of Alibaba: Nikkei 225 (+0.3%); Hang Seng (+3.8%); Shanghai Composite (+0.9%). The yen slipped after Bank of Japan Governor signalled a readiness to quell a surge in bond yields.

The FTSE 100 is currently little changed at 8,665. Standard Chartered is up 5% as the bank announced a $1.5bn share buyback and reported fourth-quarter earnings that beat estimates.

Consumer confidence remains low. A GfK gauge came in at minus 20 in February, with households more inclined to save than make major purchases due to the ongoing cost-of-living crisis. 10-year Gilts yield 4.60%, while Sterling trades at $1.2670 and €1.2080.

Source: Bloomberg

Company News

Yesterday lunchtime, Walmart released results for the financial year to 31 January 2025 which highlighted a robust finish to the year. However, the new guidance issued for the current financial year was a little underwhelming and, in response, the shares were marked down by 6%.

Walmart operates more than 10,750 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’.

During the year, total revenue increased by 5.6% on a constant currency (CC) basis to $681bn, ahead of the guidance of 4.8%-5.1% provided by the company. In the final quarter, growth was 5.3%.

In the US, comparable sales increased by 4.5% (ex-fuel) to $462bn, reflecting broad-based strength across merchandise categories and physical and digital channels. In the final quarter, growth was 4.6%, made up of a 2.8% increase in transactions (i.e., volume) and 1.8% rise in average ticket (i.e., price). E-Commerce sales grew 20%, led by store-fulfilled pickup & delivery and marketplace.

Sam’s Club, the trade business, generated revenue of $79.8bn, up 5.9% in comparable terms (ex-fuel).

Outside of the US, the international business grew by 9.1% at CC to $125.1bn. Global eCommerce sales rose by 4%, led by store-fulfilled pickup & delivery and marketplace. The global advertising business grew by 27% to $4.4bn, with Walmart Connect in the US up 24%.

Gross margin rose by 40 basis points in the year to 24.1%, driven by lower mark-downs and improved business mix. The group kept a tight rein on costs – adjusted operating expenses as a percentage of net sales grew by only 30 basis points to 20.7%.

As a result, adjusted operating income grew ahead of sales, up 9.7% at CC to $29.7bn, above the company guidance of 8.5%-9.25%. Growth in the final quarter was 9.4%. Adjusted EPS rose by 13.1% to $2.51, versus the company guidance of $2.42-$2.47. In Q4 EPS was up 10.0% to 66c, ahead of the market expectation of $64c.

The group generated free cash flow of $12.7bn during the year after $23.8bn (+16%) of capital expenditure was used to support the group’s growth strategy. Net debt ended the year at $36.8bn. Global inventory was up 2.8% to $56.4bn. The company highlights that in-stock levels are ‘healthy’.

Excess cash is returned to shareholders through dividends and buybacks. During the year, the group bought back $4.5bn of its shares, leaving $12.0bn of its $20bn repurchase authorisation. The dividend was increased by 13% to $0.94, the largest increase in over a decade, equating to a yield of 1%.

The group has provided guidance for the financial year to January 2026 which strikes a cautious tone. It expects consolidated net sales growth of 3%-4% at constant currency and operating income growth of 3.5%-5.5%, including a headwind of 150 basis points from the acquisition of VIZIO and lapping leap year. Adjusted EPS is expected to come in at $2.50-$2.60. The forecast was below market expectations and driven in part by concerns over the outlook for consumer spending as inflation emerges again and the potential impact of additional tariffs on goods made in China, Mexico, and Canada.

Source: Bloomberg