Walmart Stock (NYSE:WMT)
Walmart’s (NYSE:WMT) investment rating stays unchanged at Buy.
With this current article, I focus on a review of WMT’s Q1 FY 2024 earnings and an analysis of the company’s forward-looking projections. Walmart’s first-quarter earnings beat suggests that the corporation is continuing to steal market share from competitors as its value-focused posture earns popularity with consumers during difficult times. Separately, WMT’s better-than-expected full-year outlook shows that the company is optimistic about increasing the sales contribution of high-margin industries like advertising in the future.
As a result, Walmart’s FY 2024 projection increase and higher-than-expected Q1 EPS bolster my positive view of Walmart stock and maintain my Buy rating.
Expectations of the Sell-Side for WMT’s Q1 Financial Results
Analysts were predicting slower top-line growth and earnings growth slowdown for Walmart in the first quarter prior to the company’s Q1 FY 2024 earnings report on May 18 before trade hours.
WMT’s revenue is expected to grow by +5.5% year on year to $148.0 billion in Q1 FY 2024, compared to +7.3% year-on-year growth in Q4 FY 2023, according to market consensus financial predictions. In addition, Walmart’s non-GAAP adjusted earnings per share (EPS) were predicted to rise by 1.5%, from $1.30 in Q1 FY 2023 to $1.32 in the most recent quarter. In comparison, WMT’s bottom line increased by +11.8% in Q4 FY 2023.
Walmart’s actual financial performance during the first quarter of fiscal 2024 exceeded the market’s expectations, as stated in the next section.
The actual first-quarter financial performance of Walmart was a pleasant surprise.
WMT’s real Q1 FY 2024 results exceeded forecasts, as the company generated greater revenue growth and profitability expansion in the most recent quarter.
According to WMT’s results presentation slides, Walmart’s revenue increased from $141.6 billion in Q1 FY 2023 to $152.3 billion in Q1 FY 2024. This meant that Walmart’s top-line growth accelerated from +7.3% in Q4 FY 2022 to +7.6% in Q1 FY 2024, and WMT’s actual first-quarter revenue outperformed the consensus expectation by +2.9%.
WMT’s US comparable sales growth in Q1 FY 2024 was +7.4%, exceeding the consensus forecast of +5.3% (source: S&P Capital IQ). According to Walmart’s results presentation slides, the grocery category saw a “low double-digit” increase in comparable sales growth for the first quarter, led by “continued market share gains.”
Walmart’s real Q1 FY 2024 normalized EPS of $1.47 represented a +13.1% YoY increase in earnings, outperforming the company’s +11.8% earnings growth in the previous fiscal year’s final quarter. Notably, WMT’s significant +11.6% EPS beat in the most recent quarter was a pleasant surprise.
Walmart attributed the company’s above-expectations first quarter EPS to “sales outpacing our plan and cost leverage exceeding plan” during the company’s Q1 FY 2024 earnings call. In other words, WMT’s higher-than-expected revenue growth and consequent favorable operating leverage effects enabled the business to report a large profit beat for the first quarter of fiscal year 2024.
In the following section, I discuss WMT’s financial outlook, which also exceeded market expectations.
WMT’s Full-Year Earnings Guidance Exceeded Analyst Expectations
Walmart increased the midpoint of its full-year FY 2024 bottom line outlook by +2.9%, from $5.975 per share previously to $6.15 per share presently, above the market’s prior 2024 normalized EPS forecast of $6.14 (source: S&P Capital IQ). WMT’s FY 2024 profits guidance is based on current-year assumptions of +3.50% top-line growth and +4.25% operating profit growth.
WMT stated in its most recent quarterly results conference that its adjusted FY 2024 estimate takes into consideration its “Q1 performance and our expectations for Q2.” According to the company’s management commentary, Walmart’s favorable revenue and earnings growth momentum for the first quarter can be maintained at the very least into the second quarter.
Furthermore, Walmart stated on its Q1 earnings call that it expected “a more pronounced impact from some of the initiatives that we discussed at our Investor Day around this higher-margin, higher-growth areas” in the second half of the fiscal year 2024. This suggests that WMT anticipates a more favorable sales mix in the future, with higher-margin companies accounting for a larger proportion of its top line.
WMT had stated at its Investor Day in early April that “these smaller parts of our business that are higher margin, but growing at a much faster rate” should increase its future profitability. Walmart was referring to its “advertising, data, and membership” divisions, which have significant “contribution margins” and a +40% income CAGR for the fiscal years 2020-2023, according to its Investor Day presentation.
In a nutshell, Walmart’s full-year FY 2024 earnings estimate is realistic, indicating a reasonably favorable near-term picture for the company.
Bottom Line
Walmart’s major profitability growth drivers are market share gains and revenue mix optimization. Walmart’s latest financial results and forward-looking expectations indicate that these two important factors remain in place. As a result, I remain optimistic about Walmart’s prospects, which translates into a Buy rating for Walmart stock.
Featured Image: Megapixl
