Income, margin gains expected for Walmart’s first fiscal quarter

Walmart will report first-quarter earnings ahead of the market opening on Thursday (May 16), and all signs predict a solid quarter for the Bentonville-based retail behemoth. Analysts forecast revenue to top $158 billion, up 4% from a year ago.

Adjusted net income is forecast at $9.56 billion with an operating profit of $6.56 billion and earnings per share of 52 cents, up 6.1% from a year ago. Earnings are expected to be in line with Walmart’s guidance range of 49 cents to 53 cents per share. Comparable store sales are expected to increase by 3.1% in the U.S. helped by e-commerce growth of 13.3%. A year ago, comparable store sales rose 7.3%.

All eyes will be on Walmart’s commentary as the retailer is seen as a barometer for consumer spending behaviors that have been somewhat hard to gauge by traditional survey methods.

The National Retail Federation reports that April retail sales, excluding restaurants, automobiles and gasoline, ticked up 0.4% from March but were down 0.05% year over year. The year-over-year decline could be attributed to Easter occurring in March this year, and April had two fewer weekend days this year. March retail sales were up 0.7% from February, rising 4% year over year. February retail sales were up 0.16% from the prior month, rising 2.34% from a year ago.

Walmart has more than 25% of the online grocery market share, according to Oberlo, who said $1 out of every $4 online grocery dollars in the U.S. is spent at Walmart. Adobe reports the share of the cheapest units sold in categories like grocery and personal care grew in the first four months of this year, taking share from more expensive products. That compares to 22% for Amazon Whole Foods, 21.6% for Instacart, and 9.9% at Kroger.

Simeon Gutman, a retail analyst with Morgan Stanley, said the market expects a modest upside to the consensus earnings estimate. He said the upside is driven by ongoing market share gains in grocery. Gutman also pointed to a stabilization in Walmart’s average sales ticket, an increasing portion of higher-income shoppers and better sales with discretionary items.

Bank of America analysts expect Walmart’s grocery share gain and positive trade-down effect to continue supporting the retailer’s store and online sales as consumers continue to manage inflation. The analysts expect continued softness in discretionary retail spending, noting that Walmart has likely grown market share from store remodels and online inventory expansion with store pickup and delivery initiatives. They also see benefits to the retailer’s bottom line from the burgeoning advertising business and other ancillary businesses.

Seeking Alpha analyst Ken Taylor is more cautious, saying that investors should dig into Walmart’s various growth initiatives before determining if sales and margins can continue to rise. Other analysts say Walmart continues to face stiff competition from online competitors like Shein and Temu for higher margin discretionary purchases of personal care products, apparel, accessories and homewares.

John San Marco, portfolio manager at Neuberger Berman’s connected consumer fund, said Walmart has been at the right place at the right time, selling must-have staples and being able to boost prices. He said consumers are continuing to buy the same amount of toilet paper and breakfast cereal and that has been a benefit to Walmart. He also likes the retailer’s income stream opportunities from its non-core businesses.

San Marco believes Walmart should show off its defensiveness as it operates its core business at a high level. He said sustained inflation has helped Walmart grow its customer base with higher-income households trading down from higher-priced competitors.