Walmart Struggling With Wage Inflation

Dow component Walmart Inc. (WMT) reports Q1 2022 earnings ahead of Tuesday’s opening bell, with analysts looking for a profit of $1.21 per-share on a staggering $131.5 billion in revenue. If met, earnings-per-share (EPS) will mark a slight profit increase compared to the same quarter last year. The stock fell nearly 13% in just two weeks after missing Q4 2021 estimates in February and providing weak fiscal year 2022 guidance.

Profits Impacted by Rising Wages

The retail giant has struggled since hitting an all-time high above 150 in December, held down by an exodus out of COVID-19 beneficiaries. Shrinking profit margins have now lifted to the top of investor concerns, with the company shifting more workers to full time employment while raising average hourly wages to over $15 per hour. However, that still doesn’t measure up with competitors Inc. (AMZN) and Target Corp. (TGT), raising odds for further wage pressure.

Recent reports also warn that Walmart is having trouble competing in the highly-lucrative grocery space, struggling to hold onto the top sales slot. According to Vox’s Recode, grocery sales are “losing market share rapidly”, which isn’t surprising because multiple competitors introduced curbside pickup services in 2020 to address the COVID-19 pandemic and have kept those initiatives in place due to their immense popularity.

Wall Street and Technical Outlook

Wall Street consensus remains modestly bullish, with an ‘Overweight’ rating based upon 21 ‘Buy’, 6 ‘Overweight’, 5 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $120 to a Street-high $180 while the stock closed Friday’s session more than $20 below the median $160 target. This week’s report isn’t likely to change analyst sentiment, given growing inflationary pressure that could weigh on fiscal year results.

Walmart cleared 2000 resistance in the 60s in 2017 and entered an uptrend that carved a series of higher highs and higher lows into December’s all-time high at 153.66. The stock sold off to the 200-day moving average in March and bounced into the second quarter but is still trading in the lower half of the range established by that downdraft.  Accumulation has dropped to 2019 levels at the same time, raising odds for mixed price action into the second half of 2021.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.