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Walmart Raises Guidance, Buoyed by Growth in 3 Key Categories

It would seem there is indeed some pent-up consumer demand.

Walmart saw first-quarter sales increase 2.7 percent to $138.3 billion, with comparable sales in the U.S. outperforming company expectations and increasing 16 percent on a two-year basis. And although net income fell 31.6 percent to $2.7 billion, adjusted earnings came in at $1.69 per share, well ahead of consensus expectations of $1.21 per share from analysts polled by Refinitiv.

The retail giant raised its full-year outlook on the positive quarter, expecting net sales to now increase “low-to-mid single digits” instead of the previous “low single digits.” Additionally, while initial projections called for earnings per share to be “flat to up slightly,” the metric is now anticipated to increase in the “high single-digits.”

In a Nutshell: In the U.S., general merchandise, which includes apparel, home, outdoor living and sporting goods, saw comparable sales improve in the low 20 percent range, well outperforming the remaining major categories, grocery (low-single-digit decline) and health and wellness (mid-single-digit growth).

Sales in general merchandise categories were aided by stimulus spending and reflected customer trends toward recreation and home improvements. Grocery sales declined largely due to extenuating circumstances last year, in which customers stocked up at the onset of the Covid-19 pandemic. On a two-year basis, grocery was up double digits.

“When you look at all the categories that are that are selling at Walmart, you can tell a lot about what’s going on with customers across the country,” said John Furner, president and CEO of Walmart U.S., on the earnings call. “We definitely saw behaviors that are starting to reflect more opening up and getting back out and going to see people.”

The home and apparel categories grew a whopping “high 50 percent” at Walmart’s Sam’s Club as well. This was by far the best-performing category for the warehouse club, with technology, office and entertainment products the closest to it with “low-double-digit” sales growth.

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In a signal that shoppers are continuing to consolidate their trips, comparable transactions dipped 3.2 percent, while average ticket growth increased 9.5 percent.

Total inventories at Walmart increased 12.5 percent to $46.4 billion from $41.2 billion in the prior-year first quarter. Inventory in the U.S. increased 15.8 percent as the company builds to support higher sales trends and laps last year’s Covid-related impacts on inventory.

“We continue to monitor industry challenges related to transit and port delays, and our merchants are taking steps to mitigate the challenges, including adding extra lead time to orders,” said Brett Biggs, chief financial officer of Walmart, in a statement. “The fundamentals of the U.S. business continue to improve and we’re confident we have the strategy, structure and people in place to serve customers and reach our goals this year and beyond.”

Alongside the already existing supply chain problems that have been hampering retail on the whole, Furner noted that the ice storms in Texas early in the quarter “forced a record number of locations to close for a few days, which put some stress on the supply chain.”

Gross profit rate (gross margin) across all Walmart businesses was 24.7 percent, a 104-basis-point increase (1.04 percentage points) from last year’s first quarter. The U.S. gross margin bump was even larger at 142 basis points, reflecting the shifts into general merchandise, due in part to stimulus spending and lower markdowns.

Walmart had net cash provided by operating activities of $2.9 billion for the first quarter, a decrease from the $7 billion at the end of the prior-year quarter. The net cash decrease is primarily due to an increase in inventory purchases related to accelerated inventory sell-through in the first quarter.

The retail giant maintained its outlook for capital expenditures of around $14 billion this year, which will go toward initiatives like building out supply chain capacity and automation to keep pace with rising demand.

Net sales: Total first-quarter revenue for Walmart was $138.3 billion, or a 2.7 percent increase. Revenue was negatively affected by approximately $4.2 billion related to recent divestitures in Walmart International. On a constant-currency basis, total revenue would have increased 2.1 percent in the quarter to $137.4 billion.

Walmart U.S. comp sales increased 6 percent overall. E-commerce sales in the U.S. grew 37 percent with strong results across all channels, contributing approximately 360 basis points (3.6 percentage points) to comp sales. Online sales more than doubled over the last two years.

Sam’s Club comp sales increased 7.2 percent, and e-commerce sales grew 47 percent.

Walmart International net sales were $27.3 billion, dipping 8.3 percent, and e-commerce sales increased 49 percent. Net sales were negatively affected by $4.2 billion, or 14.1 percent, related to recent divestitures. Changes in currency exchange rates positively affected net sales by approximately $900 million.

Net earnings: Net income fell 31.6 percent to $2.7 billion from $4 billion in the first quarter a year ago, with diluted net earnings per share dropping to 97 cents per share, down from $1.40 in the year-ago quarter.

Consolidated operating income was $6.9 billion, an increase of 32.3 percent year over year. Recently divested businesses in the U.K. (Asda) and Japan (Seiyu) contributed operating income of $289 million, or 7 cents of EPS.

Adjust earnings per share totaled $1.69. The adjustment excludes the effects of net losses on equity investments of 57 cents per share; and a 15-cent-per-share loss on the sale of its U.K. and Japan operations.

CEO’s Take: Walmart CEO Doug McMillon said in his prepared remarks that the retail giant is aiming to be the “best first place that people shop” with store remodels, pickup and delivery investments and the expansion of Walmart+. He also highlighted the recent Zeekit acquisition, which “underscores the desire to grow our apparel business aggressively.”

“We need more capacity to get ahead of demand, and we remain convinced these investments are smart ones,” McMillon said in the call. “We will continuously add brand assortment and capabilities to our e-commerce general merchandise business with first-party inventory and marketplace expansion, and we’ll invest in our general merchandise business and grow in higher-margin categories.”