Shares of retailer Walmart (NYSE:WMT) dropped over 2% on Tuesday after comments from CFO John Rainey at the Bank of America London Investor Conference spooked investors. Rainey warned that the current quarter’s sales won’t be as strong as those from the previous quarter and noted that the second quarter is the most challenging in terms of comparable sales.
Walmart is also facing margin pressures as consumer spending shifts from general merchandise to lower-margin food items. Additionally, rising wages, especially in Mexico, are impacting the bottom line. Rainey highlighted that while higher wages increase consumer spending, they also drove up Walmex’s (Walmart de México y Centroamérica) selling, general, and administration costs by 12.4% in Q1. In fact, labor costs and strategic growth investments were only partially offset by operational efficiencies.
It will be interesting to see how this will impact Walmart’s bottom line when it reports its earnings results in August. The company has beaten earnings in each of its last eight quarters, as per the image below. However, rising costs might cause its current streak to end. Analysts currently expect EPS figures to come in at $0.65 per share.
Is Walmart a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Strong Buy consensus rating on WMT stock based on 25 Buys and three Holds assigned in the past three months. After a 32% rally in its share price over the past year, the average WMT price target of $73.16 per share implies 8.69% upside potential.
