Walmart’s earnings shine as it preps $2.3 billion Vizio acquisition By Reuters

By Siddharth Cavale and Ananya Mariam Rajesh

(Reuters) -Walmart kicked off U.S. retailers’ reporting season on Tuesday with robust fourth quarter results after inflation-squeezed shoppers flocked to its stores, and said it would buy smart-TV maker Vizio for $2.3 billion.

Shares in the retail giant rose 6% to a record high of $180.31 in early trading after it also gave an upbeat annual sales forecast and announced a 9% rise in its dividend, the biggest increase in more than a decade.

Walmart (NYSE:)’s bigger focus on groceries than rivals such as Target has provided a bulwark against the broad slowdown in discretionary spending. It is attracting more customers, even from higher-income households, by keeping grocery prices low as its size gives it negotiating power over suppliers, analysts say.

The company said it offered significantly more price cuts on food products at its U.S. stores during the fourth quarter, even after big cuts in the third quarter. In some categories like apparel and hard goods, prices are lower than a year ago and even two years ago, the company said on a conference call.

In addition, its efforts to spruce up its massive stores, expand its selection of online merchandise and offer more pickup and delivery options, helped it drive more transactions in stores and volumes and pass $100 billion in global e-commerce sales in 2023 for the first time, Walmart CEO Doug McMillon said on a conference call.

“Across countries, we continue to see a customer that’s resilient but looking for value,” McMillon said.

GlobalData analyst Neil Saunders said he was encouraged by Walmart’s growth in underlying volumes.

“This is a big comfort as it suggests that the chain will continue to make some progress even as inflation drops back further and faster,” he said.

Walmart reported a 3.9% rise in comparable sales, excluding fuel, for its fourth quarter ended Jan. 31, compared to LSEG estimates of 2.91%. Adjusted profit came in at $1.80 per share, compared to expectations of $1.65 per share.

For its fiscal year ending Jan. 31, 2025, Walmart said it expects consolidated net sales to grow between 3% and 4%, largely above analysts’ expectations of a 3.4% rise.

The size of the retailer’s 9% annual dividend hike also beat expectations.

VIZIO DEAL

Walmart’s proposed offer to buy Vizio for $11.50 per share in cash, is another bet on the retailer’s fast-growing U.S. advertising business, where ad sales rose 22% in the quarter ended Jan. 31 and is a bigger margin driver than its traditional grocery business.

It also gels with Walmart’s efforts to change the composition of its profit streams over the next five years, planning for more of its future earnings to come from selling ads on Walmart properties than selling everyday essentials like milk and toilet paper.

The acquisition of Vizio could help the retail giant build out a vast panel of connected TV users through owning and operating Vizio smart-TVs and Vizio’s SmartCast operating system, giving it more space to sell ads, Sensor Tower said.

Stephens analysts expect Vizio to generate nearly $600 million in software/advertising revenue in 2023.

“We believe global advertising and (Walmart Plus) membership alone will represent 20% of annual operating income in fiscal 2025,” Walmart CFO John David Rainey said on the conference call. “These profit streams allow us to fund investments in our core business while also expanding our operating margins.”

The offer price is a premium of 47% to Vizio’s closing price of $7.82 as of Feb. 12, the day before reports about deal talks emerged. Vizio shares were up about 15.5% at $11.01 in on Tuesday.

“The deal makes sense,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds Walmart shares.

“I am not at all surprised to see Walmart want to be in that same competitive arena (of retail advertising) because of just the sheer amount of dollars that are available,” he said.