Walmart (NYSE:WMT) shares trade near 1-year highs after the U.S. biggest employer reported better-than-expected Q1 results and raised its full-year outlook.
Walmart shares jumped over 2% on Thursday on better-than-feared results after Home Depot Inc (NYSE:HD) and Target Corp (NYSE:TGT) earnings reports failed to entice Wall Street. The company’s U.S. comparable sales, excluding gas, rose 7.3% to top the average analyst estimate for a growth of 5.1%.
“We had a strong quarter. Comp sales were strong globally with eCommerce up 26%. We leveraged expenses, expanded operating margin, and grew profit ahead of sales,” said Doug McMillan, Walmart President and CEO.
Strong Q1 Results Pave the Way for Outlook Raise
Walmart posted an adjusted EPS of $1.47, higher than the $1.30 reported for the same period last year and the $1.32 that Street was expecting. Overall, revenue rose 7.6% year-over-year to $152.3 billion, topping the $148.76 expected by analysts.
Walmart-only U.S. stores jumped 7.4%, excluding gas, easily ahead of the expected 5.2%. The retailer also said its digital sales rose 27% year-over-year. The gross margin fell by 18 basis points to 23.7% compared to Q1 2022.
Operating cash flow was $4.6 billion, including $0.2 billion in free cash flow. At the end of the quarter, Walmart had $10.6 billion of cash and cash equivalents. The company bought back stock in Q1, totaling 4.8 million shares,with as much as $18.6 billion remaining available under the $20 billion authorization approved in November 2022.
While Walmart generates the vast majority of its revenue from its U.S. operations, the company said it saw strong growth in international net sales, driven by China.
For this quarter, Walmart sees adjusted EPS between $1.63 and $1.68, just below the $1.70 expected by analysts surveyed by Bloomberg. Net sales are seen rising 4% YoY.
Despite an underwhelming Q2 EPS forecast, Walmart still boosted its FY outlook. The company now sees net sales increasing 3.5%, better than the 2.5-3% growth expected three months ago. The adjusted EPS is seen between $6.10 and $6.20, better than the previous forecast that saw $5.90-6.05. Street was looking for $6.14.
“Our expectations are for Walmart U.S. and International to grow slightly faster than our prior view and for Sam’s Club growth to be consistent with our February guidance,” the company said in a press release.
Analysts at brokerage Stifel described Walmart’s Q1 results as “solid.”
“While revised EPS is consistent with coming-in consensus, we anticipate consensus EBIT to increase 1-2%, with shares performing similarly,” the analysts wrote in a note to Stifel’s clients.
In addition to announcing Q1 results, Walmart said it plans to develop its own fast-charging network for electric vehicles (EVs).
‘Resilient’ U.S. Consumer
Walmart is known for attracting customers in challenging economic times due to its lower grocery prices. This time is no different with the management noting continued market share gains, including among higher-income customers.
The company’s CFO John David Rainey confirmed comments made by his counterparts at Target, who yesterday discussed a more sensitive U.S. consumer. According to Rainey, Walmart is witnessing customers who are buying smaller pack sizes, fewer discretionary items and waiting for promotions when it comes to more expensive items.
“We’re seeing in these economic indicators that there is some strain on the consumer, but the resilience has surprised us. And I think that’s in part probably because balance sheets are much stronger than they were pre-pandemic, even at this point,” Rainey told CNBC.
The April retail sales report showed that Americans increased their retail spending for the first time in three months despite very high interest rates. Retail sales for April rose 0.4% month-over-month, the Commerce Department said earlier this week.
The breakdown of the latest retail sales report shows that consumers spent more on dining out and buying cars while e-commerce sales also rose. Compared to a year-ago period, retail sales jumped by 1.6%.
“Consumer spending is downshifting but not contracting, despite high borrowing costs and tighter borrowing standards,” said senior economist Sal Guatieri of BMO Capital Markets.
Target issued a soft forecast yesterday after saying U.S. consumers continue to prioritize amid still-high inflation. Target CEO Brian Cornell said the “caution among consumers” is the key reason why the retailer is being conservative when it comes to ordering more and boosting its warehouse inventory levels.
“American consumers continue to face difficult trade-off decisions as they juggle the wants and needs of their families … The fear of a looming recession weighs heavily on many American families,” senior Target executive Christina Hennington said on a post-earnings call.
Similarly, Home Depot said on Tuesday it expects its annual profit to fall more than expected.
Summary
Walmart hiked its full-year profit and sales forecast to send its shares higher on Thursday. The company’s beat-and-raise Q1 report stands in contrast to Target, which maintained its full-year guidance on Wednesday while their senior officials offered cautious commentary on the call.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.
