Walmart shares could rise, CEO notes 'strong' Q1 and 'pent-up' demand

• Walmart Q1 revenue up 2.7% to $138.3 billion.
• Earnings per share surpasses expectations and hits $1.69.
• Q1 growth but slower than the previous quarter.
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The Walmart earnings report released on 18 May shows that total revenue for the first quarter of its 2022 fiscal year was $138.3 billion. That’s an increase of 2.7% ($3.7 billion) on the same period in 2021. It’s also nearly $7 billion more than analyst expectations. This result means the company’s earnings per share (EPS) was also better than predicted. Ahead of Walmart’s earnings report, Wall Street had set the line at $1.20 per share. In reality, adjusted EPS is $1.69.

The main focus for analysts tracking Walmart shares ahead of today’s report was the retailer’s comparable-store sales (comps) data. The opening, closing, and remodelling of stores was expected to have an impact on whether or not Walmart reached its projected target of $1.20 per share. In reality, sales were better than expected, which is something Costco wasn’t able to manage. However, the growth rate isn’t as strong as it was at the end of 2021.

Were Walmart’s comp sales up for the quarter?

The latest earnings report shows comp sales were up 6% which, although lower than the previous quarter, is slightly better than expectations. Walmart’s own guidance advised investors to expect low single-digit sales growth in Q1. The 6% increase in comp sales was ahead of this guidance and helped by a 26.8% increase in operating income.

Delving deeper into comp sales, the latest Walmart earnings report revealed the following:

The positives for Walmart shares

• eCommerce sales in the US contributed approximately 360 points to comp sales thanks to 'strong results across all channels' leading to 37% growth.
• International eCommerce sales increased 49%.
• Sam’s Club comp sales increased 7.2%, with its online services experiencing a 47% uptick in sales.
• Walmart membership income improved by 12.7% and it now has more members than ever.

The negatives for Walmart shares

• A decline in tobacco sales reduced comp sales by approximately 340 basis points.
• Walmart International net sales were down 8.3% ($2.5 billion) year-on-year to $27.3 billion. This also represents a 21.7% decrease from the previous quarter’s $34.9 billion in international revenue.
• Net sales were down 14.1% ($4.2 billion) due to recent divestitures for Walmart International.

What does the latest report mean for the Walmart share price?

The latest data tallies with the recent drop in value for the Walmart share price. Although much of the report contains better than expected results, growth is occurring at a slower rate than in previous months. Indeed, comp sales grew 8.6% in Q4 at the same time shares hit a six-month high of $152.79. There’s been a steady decline since. On 18 May, Walmart shares opened 9% below that figure at $138.89.

Wall Street analysts expected comps sales growth to fall as Covid-19 restrictions started to lift, most notably in the US. Indeed, the lifting of restrictions in recent weeks contrasts with a surge of infections in late 2020. That uptick in infections meant people were forced to spend more time at home. Given that Walmart primarily deals in home consumables, this led to an increase in sales.

What was Walmart’s reaction to the latest filing?

Even though analysts have been less bullish on Walmart shares in recent weeks, CEO Doug McMillon is pleased. He said that consumers, particularly in the US, are showing signs they want to get out and shop. Far from hurting certain elements of the business, Million believes the lifting of restrictions has helped the Walmart share price exceed expectations.

'This was a strong quarter. Every segment performed well, and we’re encouraged by traffic and grocery market share trends. Our optimism is higher than it was at the beginning of the year.'

Million acknowledged that 'stimulus' cheques in the US had an impact on the latest results, with the slow roll of support causing more 'uncertainty' than usual. But he anticipates 'pent-up demand' will help Walmart show continued growth throughout 2021.

This could be the crucial factor. If consumer demand remains high post-Covid-19 restrictions, it could help Walmart shares surpass last year’s peak. However, if certain sections of the business tail off, we may see growth occur but at an increasingly diminishing rate.

Are Walmart shares still a strong bet for 2021?

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