Walmart says inflation was stickier than expected in latest quarter

 

Walmart is planning to acquire TV maker Vizio in a deal valued at approximately $2.3 billion. Rumors of the deal emerged last week, and now the retail giant says the acquisition is official and part of a move to boost its ad business.

“The acquisition of Vizio and its SmartCast Operating System (OS) would enable Walmart to connect with and serve its customers in new ways including innovative television and in-home entertainment and media experiences,” says Walmart in a press release. “It would also create new opportunities to help advertisers connect with customers, empowering brands with differentiated and compelling opportunities to engage at scale and to realize greater impact from their advertising spend with Walmart.”

Vizio has more than 500 direct advertiser partnerships, thanks to its Vizio Platform Plus business — which the company says “now accounts for a majority of the company’s gross profit.” Vizio’s smart TV OS, SmartCast, is also used by more than 18 million active accounts.

Vizio’s overhauled homescreen.

 Image: Vizio

Walmart already has an existing Onn in-house brand of TVs, but owning Vizio will help the retailer better compete with affordable smart TVs from the likes of Amazon and Roku. Walmart previously partnered with Innovid last year to run personalized ads on TVs, and also previously partnered with Roku for “shoppable ads” that let consumers buy Walmart goods directly from their TVs.

Walmart’s proposed acquisition of Vizio will be subject to the usual regulatory clearance, and could even be terminated within a 45-day period if Vizio receives a “superior offer.” The deal comes months after Vizio gave its TV software a much-needed overhaul, with an improved modern homescreen experience for its range of TVs. That type of software differentiation will be important as Vizio continues to compete against rivals like Hisense, TCL, and budget-priced Roku TVs.

“We believe this is the ideal next chapter in Vizio’s history. By bringing our capabilities and resources together, we’ll drive innovation and create even more value for our customers,” says Vizio CEO William Wang. “Walmart’s approach is aligned with Vizio’s mission and vision, and our technology will help bring a scaled, connected TV advertising platform to Walmart Connect.”

Shares of Walmart Inc. jumped further into record territory Tuesday amid a busy day for the discount retail giant, which reported an earnings beat, confirmed a $2.3 billion deal to buy smart-TV maker Vizio Holding Corp. VZIO, 14.85% and raised its dividend by 9%.

Under the terms of the deal, Walmart WMT, 4.88% will pay $11.50 for each Vizio share VZIO, 14.85% outstanding, which represents a 20.7% premium above Friday’s closing price of $9.53.

“Our announcement today that we’ve agreed to acquire Vizio gives us the opportunity to reach and serve customers in new ways, and connect more dots for those that advertise with us,” said Chief Executive Doug McMillon in the post-earnings call, according to a FactSet transcript.

Global advertising is one of Walmart’s faster-growing businesses. The ad business climbed 33% during the fourth quarter, and grew 28% for the year to reach $3.4 billion.

Walmart expects the deal to slightly reduce earnings in the near term, given transaction-related costs, such as employee retention and technology integration.

Walmart’s stock powered up 5.8% in morning trading, which puts it on track for the biggest one-day gain in 15 months. The stock’s $9.94 price gain would add about 66 points to the price of the Dow Jones Industrial Average DJIA, which fell 66 points, or 0.2%.

Vizio shares shot up 15% toward a 15-month high. The Wall Street Journal reported last week that the companies held talks about a deal.

On the downside for Walmart, the company provided a current-quarter profit outlook below expectations.

For the quarter to Jan. 31, Walmart reported net income that fell to $5.49 billion, or $2.03 a share, from $6.28 billion, or $2.32 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $1.80 beat the FactSet consensus of $1.64.

Total revenue grew 5.7% to $173.39 billion, above the FactSet consensus of $170.85 billion.

Walmart U.S. same-store sales, or stores open at least a year, rose 4.0% to beat the FactSet consensus of 3.3% growth, as the number of transactions increased 4.3% while the value of the average transaction slipped 0.3%.

CEO McMillon said general merchandise prices were lower than a year ago, including for clothes. Food prices were lower in places including eggs and deli snacks, but were higher in places like asparagus and black berries.

Meanwhile, prices for dry grocery and consumables, such as paper goods and cleaning supplies, were up in the mid-single-digits percentage range from last year, McMillon said.

Sam’s Club same-store sales rose 3.1% to top expectations of a 2.7% increase, as transactions rose 3.6% while the average ticket was down 0.4%.

Looking ahead, the company expects first-quarter adjusted EPS of $1.48 to $1.56, below the FactSet consensus of $1.60, and guides for full-year adjusted EPS of $6.70 to $7.12 versus expectations of $7.06.

Walmart raised its annual dividend rate to $2.49 a share from $2.28. The company said the 9.2% increase is the largest dividend boost in over 10 years.

After the stock’s three-for-one split takes effect on Feb. 26, the annual dividend rate will be 83 cents a share and the quarterly dividend will be 20.75 cents a share. The new dividend will be paid out on April 1 to shareholders of record on March 15.

Based on current stock prices, the new annual dividend rate implies a dividend yield of 1.38%, which compares with the implied yield for the S&P 500 index SPX of 1.44%.

The stock has rallied 16.1% over the past three months, while the Dow has advanced 9.7%.