Last week, Walmart (WMT) reported financial results for the first quarter of fiscal 2020. Revenue increased 1% to $124 billion, with constant currency revenue climbing 2.5%. The results were led by another solid print for the U.S. business, with comparable store sales (comps) up 3.4% in the quarter. Walmart is taking market share in key categories like food and general merchandise categories, as well driving higher penetration among its private label offerings. (Note that the first-quarter comps figure includes a roughly 40 basis-point headwind from the early release of SNAP funding, which benefited results in the prior quarter.)
As shown below, comp store sales growth on a two-year stacked basis (which removes some of the noise in any given quarter) held around 6% growth. This is near the high end of what the company has delivered in any period over the past five years:
I attribute much of this success to the leadership of CEO Doug McMillon and his team. They have been dealt a tough hand, but they continue to fight for their fair share of the market in a changing world.
E-commerce revenues increased nearly 40% in the quarter and contributed roughly 140 basis points to U.S. comps. As noted on the call, online grocery has been a meaningful contributor to e-commerce growth. In addition, the company is continuing to expand its offerings:
“Customers continue to really appreciate our grocery pickup and delivery offerings as we scale them across the U.S. We have about 2,450 stores that offer free grocery pickup and nearly 1,000 stores that offer same-day grocery delivery. We’re on track to offer same-day grocery delivery from 1,600 stores while also offering grocery pickup from 3,100 stores by year-end, providing coverage to approximately 50% and nearly 80% of the U.S. population, respectively. Customers want product faster than ever before, and Walmart is the best positioned in the industry to deliver grocery same day.”
In addition to online grocery, Walmart is making investments across the business to improve the attractiveness of its broader e-commerce offering. That includes free next-day delivery from Walmart.com, which the company expects to be available across three-quarters of the U.S. by the end of the year.
Impressively, the Walmart U.S. business reported operating margin expansion for the second consecutive quarter (sales and operating income were up 3.3% and 5.5%, respectively) despite the headwind from mix shift towards e-commerce and continued price investments across the business. Physical stores leveraged expenses (“by a significant amount”) for the ninth consecutive quarter, largely due to productivity improvements and sales growth.
As I’ve discussed previously, Walmart’s current profit margins are well below what it was reporting five to 10 years ago. If it is able to report margin expansion in the U.S. in the face of rapid e-commerce sales growth and investments to support online grocery, that’s a very encouraging sign for what the financials might look like over the coming years. Said differently, we may start seeing some returns from Walmart’s many years of investment in e-commerce.
Despite low-single-digit revenue growth for the company, operating income declined by 4%. This largely reflects the inclusion of losses from the company’s majority stake in Flipkart.
The share count declined by 3%, with Walmart spending $2.1 billion on repurchases (significantly more than in the year-ago period, when buybacks were suspended in anticipation of the Flipkart investment). As a result of the lower share count, adjusted earnings per share declined by only 1%.
For the year, management still expects adjusted earnings per share to decline by a low-single-digit percentage. Adjusted for the dilution from Flipkart, that implies a low-to-mid single digit increase in earnings per share, or slightly ahead of what management expects for revenue growth (reflective of the impact of share repurchases).
Conclusion
I continue to be impressed by the steady progress Walmart has made over the past few years – and it’s starting to show in the financials. I’ll let CEO McMillon have the last word:
“We’re pleased with how we started the year. We have a stronger foundation in place with our stores, and we’re making good progress in eCommerce. We’re embracing new processes and technologies with the goal of serving our customers even better … At every step along this journey we’re staying focused on the customer, and they are noticing.”
Disclosure: None.
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