Walmart Thursday beat expectations for quarterly profit and revenue as the discounter made significant gains in e-commerce, generated profits with new businesses like advertising and won over more high-income shoppers.
The big-box retailer said it now expects to hit the high end of or slightly beat its previous full-year guidance. Walmart expected net sales growth of 3% to 4% and adjusted earnings per share of between $2.23 and $2.37.
Shares of the company hit a record high and were up about 6% in midday trading.
In an interview with CNBC, Chief Financial Officer John David Rainey said one of the factors driving Walmart’s grocery business is the growing gap between the price of cooking at home and buying food. food in fast food chains or restaurants.
Plus, he added, shoppers like the convenience Walmart offers. For the first time, its delivery business surpassed in-store pickup in terms of volume, Rainey said.
“We have customers coming to us more frequently than before and newer customers that we haven’t traditionally had, and they’re coming to a Walmart, whether it’s an online virtual store or a one of our physical stores,” Rainey said.
Here’s what the discounter reported for the fiscal first quarter compared to what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 60 cents adjusted against 52 cents expected
- Income: $161.51 billion versus $159.50 billion
Walmart’s net income jumped to $5.10 billion, or 63 cents per share, in the three months ended April 30, compared with $1.67 billion, or 21 cents per share, for the period last year.
Revenue increased 6% from $152.30 billion in the year-ago quarter. This increase includes a profit of approximately 1% from one additional day of sales in the period.
The New York Stock Exchange welcomes Walmart (NYSE: WMT) today, Tuesday, January 16, 2024, in recognition of the International CFO Summit. To honor the occasion, John David Rainey, executive vice president and chief financial officer, joined by Chris Taylor, vice president of listings and services at the NYSE, rings The Opening Bell®.
New York stock market
As the nation’s largest retailer and private employer, Walmart is often seen as a bellwether for the U.S. economy. Still, it generally fares better than other retailers during times of inflation because it sells essentials like groceries and enjoys a value-oriented reputation.
Walmart US same-store sales increased 3.8%, excluding fuel. The industry measure includes sales from stores and clubs open for at least a year. At Sam’s Club, same-store sales increased 4.4% year over year, excluding fuel.
E-commerce sales grew 22% year over year for Walmart US, fueled by in-store pickup and delivery of online orders, as well as the company’s growing third-party marketplace.
Walmart’s U.S. customers visited its stores and website more during the quarter, but spent about the same as last year. Transactions increased by 3.8% and the average ticket remained stable compared to the year-ago quarter.
“The wallets are still tight”
This week brought promising news for Walmart and other retailers: Inflation eased in April, according to Labor Department data released Wednesday. The consumer price index increased by 3.4% year-on-year. This closely monitored number helps track the cost of goods and services at checkout.
Walmart has also seen signs of easing. During the company’s earnings conference call, CEO Doug McMillon said U.S. inflation rose just 0.4% for the quarter, with deflation mid-single digits for general merchandise and low single-digit inflation for food.
He said the company has increased “rollbacks,” or price reductions on specific items, that it typically advertises on its website or with posters in its stores.
Nonetheless, the discounter has noticed the impact of inflation as its shoppers have been selective in their purchases. Rainey said “clients’ wallets are still stretched.” He said shoppers have been buying less general merchandise, such as home goods and electronics, as they prioritize spending on food and health-related items, a trend the company has seen over the last few quarters.
Still, “even low-income consumers seem to be doing pretty well,” Rainey said. He added that sales, even in general merchandise categories, have improved year over year.
Walmart had a month of weaker sales in April, which reflected retail sales figures released Wednesday by the Commerce Department, but that was offset by sales trends in other months of the quarter. Rainey recorded a weaker April through Easter, moving into March, along with cooler and wetter weather.
He said sales picked up in May and resembled the fiscal first quarter average.
During the earnings call, McMillon highlighted Walmart’s expansion of its online business and its success in getting more customers to shop for items other than groceries. Groceries make up the bulk of Walmart’s business – accounting for nearly 60% of the company’s U.S. sales in the last full fiscal year – but are not as profitable as selling items like clothes or makeup.
“We’ve punched below our weight in general merchandise, particularly in clothing and home, for a very long time, maybe forever, and I think the progress we’re seeing now is driven by store renovations and e-commerce,” McMillon said.
As Walmart attempts to appeal to younger, more affluent households, it recently launched a new private label grocery brand, which includes bolder flavors, plant-based products and more. It is also upgrading and modernizing more than 1,400 stores across the country. The renovated stores feature some of the retailer’s newest, most cutting-edge brands, like Love & Sports, an activewear brand developed with fashion designer Michelle Smith and SoulCycle instructor Stacey Griffith, and a line kitchen and interior design brand called Beautiful, developed with Drew. Barrymore.
New businesses increase profits
Walmart has looked beyond retail to boost profits and fend off competitors like Amazon.
These newer businesses, like advertising and its subscription membership program, Walmart+, increased their profits in the quarter and contributed to their operating profit growth outpacing their sales growth. The company’s global advertising business grew 24% during the quarter, including 26% growth for the U.S. segment.
The company’s third-party marketplace has also been a significant driver of business. Like Amazon, Walmart expanded its online business by hosting sellers on its website, then made more money by offering advertising and fulfillment services to those sellers.
In the U.S., marketplace sellers grew 36% during the quarter and the marketplace now offers more than 420 different items, McMillon said during an earnings conference call. In Mexico, the number of market sellers increased by more than 50%, with the total number of items increasing by almost 80%.
Rainey told CNBC that a third of Walmart’s year-over-year operating profit gains came from these new businesses.
Walmart has cut spending in some areas and invested heavily in others. Earlier this week, the company announced it would lay off and relocate hundreds of its employees, including moving many of them to its headquarters in Bentonville, Arkansas. The move follows the retailer’s closure of its Walmart Health Clinics, a network of doctors and dentists’ offices that had opened next to its stores.
On the other hand, the big-box retailer has invested money in other efforts. As it chases advertising dollars, Walmart announced in February that it would acquire smart TV maker Vizio in a $2.3 billion deal.
Rainey said Walmart’s announcement this week, which will move hundreds of people currently working from home or in offices in Dallas, Toronto and Atlanta, is about moving away from remote work, not about cutting costs. This decision also included layoffs. Walmart has not announced a five-day-a-week work policy, but has said it wants employees to work in the office the majority of the time.
“We just feel the benefit of working together,” he said. “One of our competitive advantages is our culture, and that’s fostered by being together.”
Shares of Walmart closed Wednesday at $59.83, bringing the company’s market capitalization to $482.22 billion. As of Wednesday’s close, the company’s shares were up nearly 14% year to date, outpacing the S&P 500’s gains of about 11% during the same period.
