Consumer Spending Is Picking Up at Walmart
Walmart is proving that consumer spending is picking up throughout the nation, despite inflationary pressures, as the world attempts to reopen.
The Bentonville, Ark.-based big-box retailer revealed quarterly and full-year earnings Thursday before the market opened, improving on top and bottom lines for both the quarter and full year, thanks to groceries and gifts during the recent holiday shopping season. Walmart increased its full-year guidance as a result, causing company shares to close up 4.01 percent Thursday to $138.88 apiece.
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“We had another strong quarter to finish off a strong year,” Doug McMillon, president and chief executive officer of Walmart, said in a statement. “We have momentum in our business in all three segments. We’re being aggressive with our plans and executing on the strategy. It’s exciting to see how the teams are simultaneously navigating today’s challenges and reshaping our business.”
For the three-month period ending Jan. 31, total company revenues were up about half a percentage point to $152.9 billion, compared with $152.1 billion a year ago, with strength in apparel, home and health and wellness. For the full year, net revenues equaled nearly $573 billion, up from about $559 billion during 2021’s fiscal year.
Walmart U.S. comp sales increased 6.4 percent for the full year, year-over-year, or 15 percent on a two-year stack.
Courtesy Photo Safely
The mass-merchant retailer logged quarterly profits of $3.56 billion, compared with losses of $2.09 billion during last year’s fourth quarter, as a result. The company’s full-year earnings were $13.6 billion, up from $13.5 billion the year before.
In August, McMillon said the company’s global e-commerce business was on track to reach $75 billion in revenues by the end of the year. Walmart didn’t say whether it had reached that goal yet, but did say e-commerce sales grew 1 percent during the most recent quarter, year-over-year, or 70 percent on a two-year stack. For the full year, Walmart’s U.S. e-commerce sales grew 11 percent, year-over-year, or 90 percent on a two-year stack.
“The business model is changing,” McMillon told analysts on the company’s Thursday morning conference call. “We’ve got a business that’s becoming increasingly digital. The e-commerce business, first-party, third-party is growing. It gives us the opportunity to grow advertising income, [which has] grown at a fast rate and it’s growing across markets.
“The U.S. is important in that number, but India, Mexico and other markets are going to have growth [in advertising], too, and the margins are helpful,” McMillon added. “They help us keep prices low for customers and they help us deliver the operating income number percentage.”
Internationally, gains were made in China and Mexico and in India’s Flipkart businesses, despite other international revenues falling 22.6 percent to $27 billion, during the quarter, negatively affected by more than $10 billion in divestitures. For the full year, Walmart international sales decreased 16.8 percent.
Additional growth drivers included the recently launched Walmart GoLocal, a last-mile delivery service that uses the company’s Spark Driver platform. Walmart has nearly 1,000 GoLocal service pickup points throughout its system, but plans to expand that number to nearly 5,000 by the end of the year.
“GoLocal is making deliveries for the Home Depot and other large retailers, but I’m most excited about serving small local retailers,” McMillon said. “This is good for customers, our clients and for us as we lower the cost per order by increasing the combined order size and the route density.”
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In addition, in November, the mass-channel merchant revealed that it had begun using driverless trucks to help deliver groceries.
Walmart raised next year’s guidance as a result. For the 2023 full fiscal year, the retailer now anticipates consolidated net sales will increase about 3 percent in constant currency, with comp sales growth in the U.S. up more than 3 percent for the year. In addition, the company anticipates total company sales will increase about 4 percent for the year, with earnings per share rising in the mid-single digits for the year.
“The Walmart we’re building is becoming more impactful for our customers and members, more digital, more automated and more diversified on the top and bottom lines,” McMillon said on the call.
Arun Sundaram, equity analyst at CFRA Research, kept his “buy” rating on shares of Walmart, saying the company’s momentum will likely continue throughout the back half of the year as price-sensitive shoppers seek out affordable options amid price hikes.
“We also believe investors are under appreciating [Walmart’s] evolving business model, including omnichannel transformation and its high-margin alternative profit streams, e.g., advertising is now over $2 billion in annual revenues,” Sundaram wrote in a note.
Meanwhile, investment firm Cowen & Company reiterated an “outperform” rating on Walmart’s stock and set a price target of $165.
“[Walmart’s] fourth-quarter results and [fiscal year] 2023 guidance both came in above expectations as management expertly works through macro challenges,” Oliver Chen, managing director and senior equity analyst of the group, wrote in a note. “In our view, the quarter demonstrated [Walmart’s] expanding ecosystem with progress in its top priorities, including media, [third-party] marketplace, fintech and last-mile fulfillment solutions, such as the in-home service. That said, we acknowledge valuation is near the higher-end of its recent range, and [Walmart] will continue to work through inflation, supply chain and other macro challenges.”
As a result, Walmart said it prioritized in-stock levels, with inventory up 26 percent globally and 28 percent in the U.S. for the quarter, compared with a year earlier, impacted by higher cost of goods and transit expenses.
“Sometimes it feels like 2020 and 2021 were just one long year,” McMillon said on the call. “[But] if you look at growth since the beginning of fiscal [year] 2021 through the end of fiscal 2022, excluding divestitures, our company is about 17 percent larger in terms of revenue, 31 percent larger in terms of operating income and globally our percentage of digital sales grew from 6 percent to 13 percent.
“The biggest sources of risk are external amidst an unusual last year or two and figuring out how you lap stimulus, what happens with inflation both on the cost of goods side, as well as on the operating side, will cause us to have to be good managers,” the CEO added. “But I think we’ve demonstrated over time that we have a lot of really good managers at Walmart.
“Our associates did an amazing job of serving customers and members during this busy season, even as we faced Omicron and supply chain challenges,” McMillon continued. “This quarter’s COVID-19 leave peak was larger than anything we’d experienced in 2020, or previously in 2021. We hired more associates in our plan and called for help to fill that gap, which negatively impacted expenses, but it was clearly needed.
In addition to labor shortages and elevated supply chain expenses, Walmart is battling macro pressures, such as inflation. But McMillon said this is nothing new.
“[Some have said] the Walmart U.S. customer looks like the U.S. population, and it does to a really large degree,” McMillon said. “And so, we’ll serve everybody. And during periods of inflation like this, middle-income families, lower-middle-income families, even wealthier families become more price sensitive. And that’s to our advantage. We have been through this before and we run with inflation around the world all the time. Inflation is a different environment in the U.S. right now than it has been in recent times for sure. But we’ve been dealing with inflation in South America and Mexico and other places and just kind of understand what that looks like.”
The company ended the quarter with $14.7 billion in cash and cash equivalents and $34.8 billion in long-term debt. Walmart has 10,500 stores and clubs under 46 banners in 24 countries, along with its related e-commerce sites.
Shares of Walmart are down 0.88 percent, year-over-year.
“While our omnichannel model gives the gift of time, access and affordability remain important,” McMillon said. “The consumer — which historically in the past we might have thought of as a consumer fits in a segment — consumers really are in a segment depending on the day of the week, or the hour of the day. Consumers sometimes need things right away, which we can do in under two hours with express delivery. They may need a pickup order in a couple days, or they may need something for a kid’s birthday party this weekend. And we can work with all of those and that’s really exciting.”
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