Walmart Is Firing On All Cylinders And That Includes Its Newer Businesses That Go Beyond Groceries

On Thursday, Walmart Inc WMT surpassed estimates with fiscal first quarter earnings and revenue expectations. The discounter significantly expanded its e-commerce sales and boosted profits with newer businesses, including advertising and its efforts to appeal to more affluent shoppers in order to fight off rivals like Amazon.com Inc AMZN. While Walmart is the nation’s biggest retailer, Amazon leads when it comes to e-commerce, but Walmart is determined to stop being the underdog in this rare arena as well as to grow outside groceries. 

Fiscal First Quarter Highlights

For the quarter ended on April 30th, the big box retailer reported that sales grew 6% YoY to $161.51 billion, surpassing $159.50 billion that LSEG estimated. Net income also grew from last year's comparable quarter as it amounted to $5.10 billion, or 63 cents per share.

Excluding fuel, Walmart’s same-store sales in the U.S. grew 3.8%. Also excluding fuel, Sam’s Club same-store sales grew 4.4%. 

Boosted by its growing third-party marketplace, as well as rise of both store pickup and delivery of online orders, e-commerce sales impressively rose 22% YoY in the U.S. However, despite more visits, both physical ones to its stores and online to its website, consumers spent roughly the same compared to last year’s quarter as average ticket remained flat, but transactions rose 3.8%. 

But, Walmart’s newer businesses kicked in with third of YoY increase in operating income coming from that segment.

Global advertising grew 24% and 26% in the U.S. alone. Like Amazon, Walmart expanded its online footprint by welcoming sellers onto its platform and offering them advertisement and fulfillment services. Its U.S., marketplace sellers rose 36%, while the total count in Mexico went up almost 80%.

Walmart's grocery business has been fueled by the widening gap between fast-food and restaurant pricing versus the lower cost of home cooking. Also, for the first time, its delivery business surpassed its store pickup in terms of volume, showing that shoppers appreciate the convenience that Walmart offers, as they are coming more frequently than they have before, along with newer customers.Outlook

Walmart is now expecting to hit the high end or slightly top its previous full-year guidance. It previously guided for net sales growth between 3% and 4% with adjusted earnings per share of between $2.23 and $2.37.

Walmart is doing better than others. The nation’s largest retailer and private employer is often considered as an indicator of the state of the U.S. economy. However, it is doing way better than the U.S. economy during such inflationary periods as it sells essentials like groceries that made about 60% of sales in its most recent fiscal year and when it comes to staples, its value-oriented reputation precedes the big-box retailer. But, in order to fight off rivals like Amazon, Walmart is also expanding its target demographics with its efforts to appeal to younger and high-income shoppers and these new businesses both lifted its profits during the quarter and also fueled the growth of its operating margin that surpasses its sales growth. Earlier this week, Walmart announced layoffs, along with news of reallocating hundreds of employees, but CFO John David Rainey emphasized that this move is not about cost cuts but about shifting away from remote work as the company’s corporate culture is about being together. By the looks of it, Walmart management knows what it's doing. 

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