Cautious Walmart outlook hits shares despite solid Q4 profits

Walmart reported better-than-expected profits over the critical holiday-season quarter Tuesday, but offered a disappointing outlook as inflation weighs on consumers.

The world's biggest retailer benefited from robust sales in groceries that offset weakness in discretionary goods in the just-finished quarter.

Chief Executive Doug McMillon said the chain expects "stubborn inflation" in food as executives acknowledged that grinding price pressures were hitting some consumers, denting the outlook.

But McMillon said the chain's expanded e-commerce and delivery business were drawing in more middle- and high-income shoppers.

"We're gaining share across income cohorts, including at the higher end," McMillon said at the outset of an earnings conference call.

Profits over the quarter ending January 31 came in at $6.3 billion, up 76 percent from the year-ago period. Revenues rose 7.3 percent to $164 billion.

But shares tumbled after its projection for the upcoming quarter and year missed analyst estimates, suggesting a greater hit to sales from price-conscious shoppers.

The biggest US private employer, Walmart is considered more insulated in an inflation-focused period than other chains because of its reputation for value.

The company's fourth-quarter results showed particular strength in groceries and other consumable categories, such as pet and personal care.

That helped offset the hit from lower sales in categories like toys, electronics and home goods, which have higher profit margins, but which have been less sought after as shoppers pay more for fuel and household staples.

Walmart results have also been pressured by higher labor costs and excess inventory of some goods, although the company said it made progress on this front.

McMillon praised store staff that "acted quickly and aggressively to address the inventory and cost challenges we faced last year," according to an earnings press release.

The company's profit outlook for the current year was estimated at $5.90 to $6.05 per share, with much lower US comparable sales growth. Analysts had projected profits of $6.50 per share.

Walmart also sees net sales growth of at most three percent, less than half the revenue growth over the last year.

Neil Saunders, managing director of GlobalData, said Walmart's strong fourth quarter showed "it remains the leader of the pack in retail."

But Saunders said the underperformance in discretionary categories showed it still had work to do.

"The problem with Walmart in general merchandise is that it acts and thinks like a grocery player -- merchandising in a very functional fashion with little to no flair," Saunders said.

The company has unveiled a handful of remodeled stores that offer promise, but Walmart "needs to commit to rolling out this remodel much further in the year ahead if it is to gain serious traction in general merchandise," he said.

Shares of Walmart fell 3.3 percent to $141.57 in pre-market trading.