Walmart revenue up 2.7% in the first quarter; per share earnings beat estimates

Walmart Inc. benefited from higher in-store traffic and stimulus spending in the first quarter and grew revenue to $138.3 billion, up 2.7% from a year ago and beating the consensus estimate of $132 billion.

According to the company’s earnings report released Tuesday (May 18), net income totaled $2.73 billion in the quarter ending April 30, down 31.6% from the prior-year period. That equated to diluted earnings per share of 97 cents after charges of 57 cents from losses on equity investments and 15 cents on the sales of U.K. and Japanese businesses. Walmart reported first-quarter operating income of $6.9 billion, up 32% from $5.2 billion a year ago.

The $1.69 per share Walmart reported before adjustments were considerably better than $1.21 forecast by analysts and that sent Walmart shares 4% higher in pre-market trading. Walmart also raised its full-year earnings guidance on the top and bottom lines giving a brighter outlook for the remaining three quarters. The retailer said it expects revenue growth of low-to-mid single digits. Excluding divestitures, Walmart expects earnings per share to rise between 10% and 13% this year, up from nearly flat earnings in prior estimates.

“This was a strong quarter,” Walmart president and CEO  Doug McMillon said in his opening remarks of the company’s call Monday with analysts. “Every segment performed well, and we’re encouraged by traffic and grocery market share trends. Our optimism is higher than it was at the beginning of the year. In the U.S., customers clearly want to get out and shop. We have a strong position as our store environment improves and eCommerce continues to grow. Stimulus in the U.S. had an impact, and the second half has more uncertainty than a typical year. We anticipate continued pent-up demand throughout 2021.”

U.S. STRENGTH
Walmart’s U.S. business was particularly strong with comp sales rising 6% with e-commerce adding 3.6% to that number. Average ticket rose 9.5% with 3.2% fewer transactions, much stronger than the 1.4% average ticket gain analysts had projected. Walmart U.S. e-commerce sales rose 37% year-over-year.

McMillon said compared to a year ago, U.S. consumers are spending more on general merchandise compared to their grocery stock-up buying in early 2020. He also said Walmart recovered some of the lost market share in grocery in the recent quarter as in-stocks improved. He admitted some stores are experiencing low inventory levels from continued high grocery pickup and delivery. He said Walmart is working to combat the issues by adding more micro-fulfillment centers and work through supply chain challenges. McMillon said more store remodels and expanding micro-fulfillment centers are a priority to add capacity to the burgeoning online consumables retail business.

Ben Bienvenu, a retail analyst with Stephens Inc., said it’s good to see the Bentonville-based retailer off to such a good start with gross margins in the U.S. business outperforming estimates at 24.7%. He said as Walmart continues to scale its e-commerce business the profitability also improves. He is bullish on Walmart shares with a “buy” rating reiterated following the call on Tuesday. (Stephens conducts investment banking services for Walmart and is compensated accordingly.)

Gordon Haskett analysts said Walmart is a post-pandemic value player as consumers have the appetite and ability to spend. Chuck Grom at Gordon Haskett anticipates more consumers will return to work, particularly as children return to schools as vaccinations get rolled out to adolescents in the coming months. He expects a hybrid model in which retailers like Walmart that have benefited from the pandemic will continue to do so.

SAM’S CLUB, INTERNATIONAL RESULTS
Sam’s Club posted net sales revenue growth of 10.1% to $16.7 billion in the quarter. Comp sales rose 7.2% with e-commerce providing a 3.1% bump to the overall sales metric. Including fuel, comp sales rose 11.1%.

Just like with Walmart U.S., consumers consolidated their trips and bought more on their fewer visits as tickets rose 4.9% while trips rose just 2.2%. The Sam’s business unit said e-commerce sales rose 47% from a year ago. Membership income rose 12.7% in the quarter with significant growth in renewals and first time sign-ups, the company noted in the release.

Walmart’s diverse international business unit also reported better-than-expected growth in the quarter following the divestitures in the U.K. and Japan. Revenue was $27.2 billion, down 8.3%. The retailer said the divestitures represent a $4.2 billion loss to year-over-year revenue. Walmart said it was able to increase its gross margin by 0.46% in the business unit following the divestitures. Operating income rose 48.1% to $1.2 billion in the period.

McMillon said reducing the international business and focusing on high growth markets is paying off. He said other countries have been slower to recover from the pandemic and online sales growth remains strong, rising 166% in Mexico, 60% in China and 116% in Canada in the first quarter compared to a year ago.

Walmart shares (NYSE: WMT) traded higher in the morning session Monday around $141.52, up $2.63 in heavy volume. Over the past 52 weeks, the shares have traded between $117.01 and $153.68. Walmart said it returned $4.4 billion back to shareholders in the past quarter with $2.8 billion in stock repurchases and $1.5 billion in dividends.