(WMT) Beat but Lower
Walmart reported Q4 EPS of $1.71 vs. consensus expectations of $1.52, driven by upside in sales and lower expenses. Walmart U.S. comp sales grew 8.3% with transactions up 1.8% and average ticket up 6.3%. Inflation in food categories was +mid-teens%. Sam’s Club grew 12.2% with transaction growth of 6.7% and ticket growth of 5.2%. International sales grew 2.1% or 5.5% in constant currencies led by Mexico, China, and Canada. Management said higher income shoppers constituted more than half the sales gains in the U.S. again in Q4.
Grocery comps were up mid-teens while general merchandise comps were down MSD% with weakness in discretionary categories. Walmart e-commerce grew by 17%. Sam’s Club membership income grew 7.1%. Sam’s Club saw better trends in general merchandise and discretionary items with HSD% growth than Walmart U.S. did.
Gross margins contracted 110bps due to markdowns and a higher mix of grocery. Management said, “It’s dry grocery and consumables that we think are going to create the pressure that customers are going to feel and have the impact as it relates to us on mix over the course of the year.” Inventory was only up 0.1% at the end of Q4 after being up 12.6% YOY at the end of Q3 despite inflation and sales growth. Inventory at Walmart U.S. decreased by 3%. Private brand penetration increased by 160bps in the quarter and accelerated in the last 90 days. SG&A leveraged by 89bps.
Management guided Q1 and the year below consensus expectations. EPS for 2023 is expected to be between $5.90 to $6.05, $.48 to $.63 lower than consensus expectations. Headwinds for 2023 include $.12 for Massmart non-controlling interest, $.10 for a higher tax rate, $.20 from higher interest expense, and $.14 for a larger LIFO charge.
For 2023 management expects Walmart comp sales growth between 2 to 2.5% ex. fuel. For Sam’s Club management expects 5% SSS growth ex. fuel. Consensus expectations were ~+3.0% for the U.S. and ~+4.5% for Sam’s Club. Management said the deceleration in comps reflects their cautious view of the consumer rather than less visibility in their own initiatives or trends. Management’s guidance for SSS is too low, setting expectations for the year too low. The reasons for the lower EPS guide are also below the line items and not operational.
The third time is a charm (GIS)
General Mills raised its 2023 guidance at the CAGNY conference yesterday. Management’s visibility on service (in-stock levels), pricing, elasticity, and gross margins has improved. Guidance for revenue, EBIT, and EPS growth in 2023 was raised for the third time.
- Organic net sales growth is now expected to be 10% compared to 8-9% from the FQ2 report and 6-7% from the FQ1 report.
- Adjusted operating profit is expected to be 6-7% compared to 3-5% from the FQ2 report and flat to +3% from the FQ1 report.
- Adjusted EPS growth is expected to be 7-8% compared to 4-6% from the FQ2 report and 2-5% from the FQ1 report.
Management is investing more in marketing with a doubling in media spend growth from 5% to DD% in 2023. Capacity constraints limited the growth of several brands which will be alleviated this year. Management focused on Pet Food and North America Retail in the presentation yesterday. In Pet Food, Blue Buffalo is leading the market and growing at a mid-teens% rate by creating demand in the premium-end. Management confirmed that growth outside of the IRI-tracked channels is “growing nicely.” In North America Retail, the company is executing across all functions to grow ahead of the industry. Management expects further price increases in 2023 due to an outlook for further inflation. “While we don’t know exactly what’s ahead, it’s certainly not a deflationary environment. I would suggest it will still be an inflationary environment. And as for pricing, we announced price increases during our third quarter because we see the inflation coming in the double-digits.”
It’s all price (TAP)
Molson Coors reported Q4 EPS of $1.30, above consensus expectations of $1.07. Overall revenue grew 3.8% with volumes declining 6.9% and pricing of 11.4% plus a mix benefit. Revenue per hectoliter increased 11.4% in the quarter while volumes declined 6.9%. The Americas grew 0.4% with revenue per hectoliter growth of 12.1%. Volumes decreased by 10.5% with brand volumes falling by 6.6%. Trade day adjusted volumes in the U.S. decreased by 5.4% which management attributed to cycling inventory build last year as well as pull forward ahead of the price increase. In Canada, brand volumes decreased by 5%, with price/mix growth of 6.7%. In Latin America, brand volumes decreased by 6.9%. In EMEA and APAC revenue increased by 20.3% with price/mix growth of 4.7% offset by a 1% decline in volumes.
Management countered Ball Corp.’s statement that beer manufacturers are promoting more in 2023. Instead of consumers trading out of beer and purchasing other staples, management said they have seen a subset of value-conscious consumers trade down to smaller pack sizes.
COGS per hectoliter increased by 11.5% with 2/3 of the increase from cost inflation in materials, energy and transportation. 20% of the increase was from the higher premium beer mix and the remainder from deleverage.
Management guided 2023 revenue growth of LSD% with EBIT growth of LSD%. Gross margin per hectoliter is expected to grow in 2023 despite inflationary headwinds due to cost savings efforts and commodity hedges. Management’s plans are a return to typical price increases of 1-2% in the fall lapping the 5% in the fall of 2022. The risk to management’s outlook for 2023 is whether sales can grow +LSD% and gross margins to expand as the price increase in the spring is lapped and the price increase in the fall is only 1-2% with the current inflationary headwinds.
