Walmart shares plunged nearly 10 percent on Wall Street on Thursday after the retail giant reported disappointing domestic sales growth.
The stock fell 9.95 percent around 6:00 p.m. French time, dragging down the company despite stronger than expected overall second quarter earnings and an upgrade to its full year financial outlook.
The sharp decline was triggered by a slowdown in the United States, where Walmart generated sales growth of just 2.6 percent year on year. That result fell well short of the 4.6 percent growth expected by financial analysts, marking the company's weakest domestic performance in more than six years, according to Bloomberg.
Walmart, which ranks as the eighteenth most valuable company in the world with a market capitalisation of 825.13 billion dollars, operates thousands of stores across the globe. As the largest private employer and retailer in the United States, its sales are closely watched as an indicator of broader consumer spending and household financial health.
Strong Quarterly Revenue and Profit
The sharp drop in the share price came despite an otherwise solid performance for the second quarter, which ran from May through the end of July. Total revenue reached 187.9 billion dollars, an increase of 5.1 percent at constant exchange rates. Constant currency figures remove the effect of foreign exchange fluctuations to show underlying business trends.
Adjusted net profit per share rose to 81 cents for the quarter, up from 68 cents during the same period a year earlier. That beat the average analyst consensus of 74 cents.
Encouraged by those quarterly numbers, the retailer raised its guidance for the full financial year. Walmart now expects net sales growth of between 4 percent and 5 percent, up from its earlier projection of 3.5 percent to 4.5 percent.
The company also lifted its outlook for adjusted operating profit to between 7 percent and 8.5 percent, compared with the previously forecast range of 6 percent to 8 percent. Walmart projected adjusted earnings per share between 2.80 dollars and 2.87 dollars, an increase from its prior target of 2.75 dollars to 2.85 dollars.
High Valuation and Market Reaction
Investors nevertheless focused on the weakness in the American business. In a research note published before Wall Street opened, investment bank Citi wrote that the domestic results were expected to weigh on the share price because of Walmart's relatively high valuation multiples. Citi added that it still viewed Walmart as well placed to navigate the market environment.
Valuation multiples compare a company's share price to financial metrics such as earnings. When a stock trades at a high valuation multiple, investors expect strong growth, which can make the share price particularly vulnerable when results fall short of expectations.
The market reaction arrived during a quiet period for corporate earnings. Company announcements typically slow down during August, when many market participants take summer breaks. That slowdown can reduce trading volume and amplify share price swings.
Wall Street is now looking ahead to earnings from graphics chipmaker Nvidia, which is scheduled to deliver its financial results on August 26. Investors hope the semiconductor manufacturer could provide fresh momentum for the broader market following the quiet summer trading stretch.
