Walmart
posted first-quarter adjusted earnings and revenue that beat Wall Street expectations, raising its outlook for the fiscal year—a marked contrast with other retailers that have reported results this week, particularly those that don’t focus as heavily on essentials.
Walmart
(ticker: WMT) reported adjusted earnings of $1.47 a share on revenue of $152.3 billion. Analysts surveyed by FactSet were expecting adjusted profit of $1.32 a share on revenue of $148.9 billion.
U.S. same-store sales climbed 7.4%, ahead of analysts’ estimates of 5.5%.
“We had a strong quarter. Comp sales were strong globally with eCommerce up 26%,” Chief Executive Doug McMillon said in the earnings release. “We leveraged expenses, expanded operating margin, and grew profit ahead of sales.”
The retailer also raised its financial forecasts for fiscal 2024. The company now expects adjusted earnings of between $6.10 to $6.20 a share, while analysts surveyed by FactSet had been expecting $6.14. Revenue for the year is now expected to increase about 3.5%.
Guidance for the current quarter was below consensus. Walmart said it expects second-quarter earnings of between $1.63 and $1.68 a share. Analysts surveyed by FactSet were expecting earnings of $1.71.
In early afternoon, the stock was up 0.6% at $150.56, though it rose as high as $154.29 in morning trading.
The positive reaction is no surprise. Other stores have provided a more mixed picture of consumer demand, while Walmart’s report and full-year outlook were unequivocally strong, punching through the high expectations Wall Street had before the numbers landed.
Prior to Walmart’s results, retail earnings season was off to a muted start.
Target
(TGT) delivered earnings that were better than expected, although the big-box company sounded a cautious note with its financial forecasts. And off-price retailer
TJX
Cos. (TJX) also delivered a downbeat second-quarter forecast. Both stocks zigzagged in response to the results.
The focus of Target and TJX is more on discretionary products like clothes, a category that has taken a hit as inflation forces shoppers to spend more on essentials like food. Even
Home Depot
(HD) noted weakness in discretionary sales when it reported results Tuesday.
By contrast, Walmart excels at selling essentials, which is how it earned its reputation as a more defensive retailing investment. That appears to be working out now, as consumers are still laser focused on value, given the high cost of living and people’s continuing desire to spend on experiences such as travel that that were on hold during the pandemic.
That said, the company hasn’t been immune to shifting spending patterns. It was caught flat-footed last year when shoppers rapidly reduced their purchases of discretionary products like apparel and home goods in a turnabout that forced management to sharply lower its guidance.
And Walmart sounded the alarm again in February. The company gave a weak forecast that overshadowed strong results, warning that its shoppers were feeling pinched. By contrast, Thursday’s report was strong, leading the company to lift its outlook, to investors’ relief.
Walmart’s results did demonstrate that it is seeing some of the broader trends affecting the industry. While grocery sales remained robust, lifting its same-stores sales, discretionary categories like apparel and home goods were lower.
The company’s big grocery business comes with slim margins—gross margin did slip in the quarter–and somewhat easing food prices could act as a small headwind later this year. That said, on its conference call management noted it’s working with suppliers to lower food prices as quickly as possible “to free up cash for customers to use for discretionary goods…it’s just taking longer in those categories than we want.”
“Walmart’s first-quarter performance suggests the company is confident in its momentum and that forward guidance is probably conservative,” wrote Wells Fargo analyst Edward Kelly. “The list of high-quality names where we can realistically expect any earnings upside this year is small, but Walmart makes the cut.”
In fact, management noted that it was attracting new customers, including valuable younger and higher-income consumers, drawn in by Walmart’s grocery business. Those using its Walmart+ subscription services also tend to spend more than regular shoppers, it noted.
The company’s e-commerce business grew 26% in the quarter, while its global advertising business surged 30%, demonstrating the company’s continuing evolution away from its core retail business toward faster growing, more profitable segments.
“Walmart is undergoing a remarkable transformation, evolving dramatically beyond its roots as a traditional retailer into a multifaceted household services company,” wrote Third Bridge analyst Nicholas Cauley.
The picture also looked good on the international side, with double-digit sales growth in key markets like China and Mexico and India’s FlipKart.
“The year is off to a good start,” said Chief Financial Officer John David Rainey. The market seems to agree.
Write to Teresa Rivas at teresa.rivas@barrons.com and Angela Palumbo at angela.palumbo@dowjones.com
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