Walmart Stock: In a Seasonally Challenging Time for Retail, Walmart’s Earnings Shine

Walmart Stock

Walmart Stock (NYSE:WMT)

In stark contrast to other retailers that have reported their quarterly results this week, particularly those that do not concentrate as heavily on essentials, Walmart has reported adjusted earnings and revenue for its first quarter that exceeded the expectations of Wall Street. As a result, the company has raised its outlook for the current fiscal year.

The publicly traded company Walmart (NYSE:WMT) reported adjusted earnings per share of $1.47 and revenue of $152.3 billion. FactSet’s survey of market experts projected that the company would post an adjusted profit of $1.32 per share on revenue of $149.0 billion.

The growth in same-store sales in the United States was 7.4%, which was significantly higher than the 5.5% increase that analysts had anticipated.

“This was a very successful quarter for us. In the earnings release, Chief Executive Doug McMillon stated that comparable sales had been strong around the world, with online sales having increased by 26%. We were able to reduce costs, increase our operating margin, and increase profits at a faster rate than sales.

Additionally, the retailer revised upward its financial projections for the upcoming fiscal year 2024. The company is forecasting adjusted earnings of between $6.10 and $6.20 per share, whereas the consensus forecast among analysts surveyed by FactSet was $6.14 per share. It is currently anticipated that there will be a 3.5% rise in revenue for the year.

The guidance provided for the current quarter was lower than the consensus estimate. Walmart has stated that it anticipates earnings per share between $1.63 and $1.68 for the second quarter. FactSet’s survey of industry experts revealed that they anticipate earnings of $1.71 per share.

The share price reached a high of $154.29 in the morning session of trading, but it had dropped to as low as $150.56 by the early afternoon.

It shouldn’t come as a surprise that people responded positively. Walmart’s report and full-year outlook were unequivocally strong, punching through the high expectations Wall Street had before the numbers landed. While other stores have provided a more mixed picture of consumer demand, Walmart’s report and full-year outlook were both positive.

The retail earnings season had gotten off to a slow start prior to Walmart’s announcement of its results. Even though the big-box retailer sounded a cautious note with its financial forecasts, Target delivered earnings that were better than expected. In addition, off-price retailer TJX Cos. presented a forecast for the second quarter that was less than optimistic. Both stocks moved all over the place as a result of the results.

Target and TJX put more of their emphasis on non-essential items such as clothing, which is a category that has suffered as a result of shoppers being forced to spend more money on fundamentals such as food due to inflation. When it reported its results on Tuesday, Home Depot was not the only retailer to highlight the decline in discretionary sales.

Walmart, on the other hand, is known for being a more defensive retail investment because of its proficiency in selling necessities. This is how Walmart earned its reputation. Given the high cost of living and people’s continuing desire to spend money on experiences such as travel that were put on hold during the pandemic, that appears to be working out now, as consumers are still laser-focused on value. This is because of the high cost of living and people’s continuing desire to spend money.

Having said that, the organization hasn’t remained immune to changing patterns of spending. It was taken by surprise the previous year when consumers suddenly cut back on their purchases of discretionary products like apparel and home goods, which resulted in management being forced to significantly reduce its outlook for the future.

And Walmart issued a fresh warning about the situation in February. The company warned that its customers were experiencing a sense of financial strain as a result of its pessimistic outlook, which overshadowed the positive results. On the other hand, the report that was released on Thursday was positive, which prompted the company to improve its outlook, much to the relief of investors.

The results of Walmart did show that the company is aware of some of the more widespread trends that are influencing the industry. Despite the fact that grocery sales remained strong, which helped to boost the company’s same-store sales, discretionary product categories such as apparel and home goods saw sales decline.

The company’s large grocery business comes with thin margins — gross margin did decrease during the quarter — and the somewhat gradual decline in food prices may act as a slight headwind later on this year. Having said that, management mentioned on the conference call that it is working with suppliers to reduce the price of food 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,” an analyst from Wells Fargo named Edward Kelly wrote. Walmart is one of the few high-quality names on the list of companies for which we can realistically expect an earnings increase this year.

In point of fact, management noted that it was attracting new customers, including valuable younger and higher-income consumers, who were drawn in by Walmart’s grocery business. These customers were primarily drawn in by Walmart’s low prices and wide selection. According to the research, customers who use Walmart+ subscription services have a tendency to spend more money than typical customers.

The company’s global advertising business surged 30% during the quarter, demonstrating the company’s continuing evolution away from its core retail business and toward faster-growing, more profitable segments. The company’s e-commerce business increased its revenue by 26% during the quarter.

“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. “Walmart is evolving dramatically beyond its roots as a traditional retailer into a multifaceted household services company.”

The picture looked promising on the international front as well, with sales increasing by double digits in significant markets such as China and Mexico, as well as in India’s FlipKart.

According to John David Rainey, Chief Financial Officer of the company, “the year is off to a good start.” It would appear that the market agrees.

Featured Image: Unsplash @ veryinformed

Please See Disclaimer