Walmart tops expectations with blockbuster Q1

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Walmart tops expectations with blockbuster Q1

By Marianne Wilson - 05/19/2020
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Walmart Inc. reported a strong first quarter as consumers beat a path to its online site and stores, which have remained open during the COVID-19 pandemic.

The retail giant on Tuesday also announced that it is discontinuing its brand, which it purchased for some $3.3 billion in 2016. Walmart said it will focus on leveraging the continuing strength of its own online brand instead of On the company’s earnings call with analysts, CEO Doug McMillon said the acquisition was “critical to jump-starting the progress” Walmart has made during the last few years with its online operations.  

Walmart’s total revenue rose 8.6% to $134.6 billion in the quarter ended April 30, beating analysts’ expectations of $132.80 billion. The company’s average ticket rose 16% and transactions dropped by about 6% during the quarter.

Online sales surged 74% amid strong results for grocery pickup and delivery services, and marketplace. Walmart’s U.S. same-store sales rose 10%, led by strength in food, consumables, health & wellness and some general merchandise categories.  

In comments, analyst Neil Saunders called Walmart’s 74% rise in digital sales “extremely impressive” and one that wouldn’t have been possible if Walmart had not already been investing in the capacity and efficiency of its online operations. 

“That Walmart has outperformed Amazon, at least in growth terms, underlines both the deficiencies of Amazon in grocery – which generated the bulk of sales this quarter – and Walmart’s growing power in the segment,” said Saunders, managing director, GlobalData Retail. (Click here for more analysis.)

Walmart’s net income rose to $3.99 billion, or $1.40 per share, from $3.84 billion, or $1.33 cents a share, last year. Excluding items, Walmart earned $1.18 per share. Analysts were expecting Walmart would earn $1.12 per share.

In response to surging demand during the pandemic, Walmart has hired some 250,000 employees, temporarily increased wages and enhanced cleaning of its stores and fulfillment centers. The chain said that incremental costs related to the crisis reached nearly $900 million. (On the call with analysts, McMillon attributed three-quarters of the costs to employee compensation and benefits.) The result was that Walmart’s operating margins were down 62 basis points to 20.5% in the quarter, but operating income still rose 5.6% to $5.22 billion in the quarter.

“Walmart’s one-stop shop and EDLP promise are a recipe for growth in financial crisis, as shown by growth in both brick-and-mortar and e-commerce, and further highlighted by the strength at the end of April from government stimulus checks,” said Lei Duran, senior VP at Kantar. 

Despite its strong first-quarter performance, Walmart, similar to many other retailers, said it would withdraw its guidance for its fiscal year 2021, due to “unprecedented variability in the macro environment” brought on by COVID-19. 

“The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including the duration and intensity of the COVID-19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence,” said Brett Biggs, CFO.

“Our business fundamentals are strong, and our financial position is excellent. Customers trust us to deliver on our brand promise, and I’m confident in our ability to perform well in most any environment. While the short-term environment will be challenging, we’re positioned well for long-term success in an increasingly omni world,” added Biggs.

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