Morning Note: Market news and updates from Walmart and Sage.

Market News

US equities rose last night – S&P 500 (+0.4%); Nasdaq (+1.0%) – led by big tech as traders await Nvidia’s earnings later today. The company is expected to have generated revenue of $33.25bn in Q3.

Geopolitics remain front and centre. Vladimir Putin is open to discussing a Ukraine ceasefire deal with Trump but won’t make any major territorial concessions and also wants Kyiv to abandon ambitions to join NATO, Reuters reported. The US Embassy in Kyiv closed after it said “received specific information of a potential significant air attack” today.

The 10-year Treasury yields 4.42%, while gold moved up to $2,627 an ounce. Bitcoin trades around $93,000. Brent Crude is $73.50 a barrel.

In Asia this morning, markets were mixed: Nikkei 225 (-0.2%); Hang Seng (+0.2%); Shanghai Composite (+0.7%). Japan’s exports rebounded on China chipmaking demand. The FTSE 100 is currently trading 0.3% higher at 8,120.

UK inflation for October rose back above the Bank of England’s 2% target – 2.3% vs. the estimate of 2.2% – reinforcing the case for policymakers to take their time cutting interest rates. The core measure came in at 3.3%, ahead of the 3.1% forecast. According to the Resolution Foundation, Britain has underestimated the number of people in work by almost 1m people since 2019, findings that may have significant implications for the BOE’s rate path. Sterling moved up to $1.2678 and €1.1990.

In Germany, Olaf Scholz reiterated he would be his party’s candidate in the 23 February election, brushing aside speculation he may be replaced by the more popular Defence Minister Boris Pistorius.

Source: Bloomberg

Company News

Yesterday lunchtime, Walmart released results for the third quarter of its financial year to end January 2025. The company delivered another strong performance and once again raised its full-year guidance. In response, the shares rose by 3%.

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 – $648bn in the last financial year.

In the 13 weeks to 25 October, consolidated revenue increased by 6.2% on a constant currency (CC) basis to $169.6bn, better than the guidance provided by the company of 3.25%-4.25%, and the $167.7bn market estimate.

In the US, comparable sales increased by 5.3% (ex-fuel) to $114.9bn, reflecting broad-based strength across merchandise categories and physical and digital channels. Growth was made up of a 3.1% increase in transactions (i.e., volume) and 2.1% rise in average ticket (i.e., price). E-Commerce sales grew 22%, led by store-fulfilled pickup & delivery and marketplace.

Sam’s Club, the trade business, generated revenue of $20.3bn, up 7.0% in comparable terms (ex-fuel).

Outside of the US, the international business grew by 12.4% at CC to $31.5bn. Global eCommerce sales rose by 27%, led by store-fulfilled pickup & delivery and marketplace. The global advertising business grew by 28%, with Walmart Connect in the US up 26%.

Gross margin rose by 21 basis points to 24.2%, driven by Walmart US. The group kept a tight rein on costs – adjusted operating expenses as a percentage of net sales grew by only 19 basis points to 21.2%, driven by higher variable pay expenses due to exceeding planned performance. As a result, adjusted operating income grew ahead of sales, up 9.8% at CC to $6.7bn. Adjusted EPS rose by 13.7% to $0.58, well above the group’s guidance of $0.51-$0.52 and the market expectation of $0.53.

There was free cash generation of $1.9bn, while net debt ended the quarter at $37.3bn. Global inventory was down by 1.0% to $63.3bn, including a decrease of 0.6% for Walmart US. The company highlights that in-stock levels are ‘healthy’.

Excess cash is returned to shareholders through dividends and buybacks. During the quarter, the group bought back $1.0bn of its shares, leaving $13.5bn of its $20bn repurchase authorisation. The company also paid out $1.7bn in dividends.

The company has once again raised its full-year guidance. It now expects consolidated net sales growth of 4.8%-5.1% at constant currency vs. previous guidance of 3.75%-4.75%. Operating income growth of 8.5%-9.25%, versus 6.5%-8.0% previously. Adjusted EPS is expected to be $2.42-$2.47 above the previous guidance of $2.35-$2.43.

Source: Bloomberg

Sage Group has today released results for the financial year to 30 September 2024. Profit came in better than expected as the group continued to expand its global cloud solutions. A new share buyback programme was announced and upbeat guidance for the new financial year was released. In response, the shares are up 15% in early trading.

Sage supplies technology that helps businesses of all sizes manage everything from money to people. This is done through Sage Business Cloud, a business management solution comprising Accounting, Financials, Enterprise Management, People & Payroll, and Payments & Banking. Software subscription penetration stands at 82% as the business continues the transition towards subscription and Sage Business Cloud. The group has continued to scale the Sage Network and roll out Sage Copilot, its generative AI-powered assistant, now available to over 8,000 customers of Sage Accounting, Sage for Accountants and Sage Active.

The group is focused on increasing recurring revenue (now 97%), delivering attractive operating margins and strong free cash flow, and paying a progressive dividend.

In the year to 30 September 2024, total revenue grew by 9% in organic terms to £2,332m, in line with company guidance. The performance reflected continued strength of the group’s subscription-based recurring revenue model. The renewal rate by value is 101%, reflecting strong retention rates and a good level of sales to existing customers.

Sage Business Cloud revenue increased by 16% to £1,871m, including cloud native revenue up 23% to £732m, primarily through new customer acquisition, and by growth in cloud connected revenue from both existing and new customers.

Subscription penetration increased from 79% to 82% driven by growth in subscription revenue of 13% to £1,910m. Annualised Recurring Revenue (ARR) grew by 11% to £2,339m, reflecting growth across all regions balanced between new and existing customers.

Regionally, in North America, revenue grew by 12%, with a good performance from Sage Intacct supported by Sage 50 cloud and Sage 200 cloud. In the UKIA region, revenue increased by 8% driven by cloud solutions for small businesses together with Sage Intacct. In Europe, revenue increased by 6%, with growth across accounting, HR, and payroll solutions.

Underlying operating profit rose by 21% to £529m, with the margin up 220 basis points to 22.7%, driven by operating efficiencies as the group scales the business.

Underlying cash conversion is very strong, at 123%, reflecting continued growth in subscription revenue and good working capital management. Free cash flow increased by 30% to £524m.

The group has a robust balance sheet, with net debt of £738m and cash and available liquidity of £1.1bn. Financial gearing stands at a comfortable 1.1x net debt to EBITDA. Sage intends to operate in a broad range of 1x to 2x net debt to EBITDA over the medium term, with flexibility to move outside this range as business needs require.

The full-year dividend has been increased by 6% to 20.45p, in line with the policy to grow progressively over time. The group has also announced a new £400m share buyback programme, reflecting confidence in the group’s future prospects.

Looking ahead to the financial year to September 2025, the group has good momentum and expects organic total revenue growth to be 9% or above. Operating margins are expected to trend upwards in FY2025 and beyond, as the group focuses on efficiently scaling the business.

Source: Bloomberg