- Walmart reported a stellar set of results for the first quarter of 2024, with revenue up by 7.7% to $152.30, vs. market estimates of $148.72—an increase of $4.39 billion—and adjusted earnings per share of $1.47, beating estimates of $1.32.
- In addition, the company raised its guidance for 2024 from $5.90 to $6.05 to $6.10 to $6.20, with management stating that they had gained market share in groceries, including the higher end of the income market. e-Commerce increased by 26%, while expense containment and an expansion in operating margins were a result of leverage. Inventory levels declined by 9%, reversing the previous bloated stockpile that had resulted in major selling price reductions and margin compression, reflecting management’s ability to counter challenging operating conditions caused by escalating food prices of around 20% over the past year.
- Consumers remain under pressure, trading down to Walmart’s value-focused merchandise with strong grocery and health and wellness sales. However, subdued electronics and apparel sales have resulted in gross profit margins declining by 18bps to 23.7%, reflecting a change in the sales mix. EBITDA margins were up by 30bps, with operating cash flows positive due to lower inventory levels, resulting in an improvement in FCF.
- China operations, following the reopening after a prolonged Covid shutdown, saw net sales up by 28.3% to $5.36 billion as well as an increase in operating income. Sam’s Club sales at the higher end of the market remained buoyant, with membership income up by 6.3% and net sales increasing by 7.4%, while e-commerce sales rebounded by 19%.
- Despite food inflation remaining sticky at around 8[_10] and pressure on consumer spending, the group appears to be resilient in a tough operating environment, with a focus on profitability by the big-box retailer rather than chasing less profitable sales growth.
- The shares, at a forward PE of 23x, appear to be in turnaround mode but seem to be fully priced at current levels. However, they could benefit from a better macro-outlook later in 2023-2024.By Ron Klipin
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