ii view: Walmart online profit helps offset price hike worry

First-quarter results to 31 March  

• Currency adjusted revenue up 4% to $168 billion (£126 billion)
• Currency adjusted profit up 3% to $7.3 billion (£5.5 billion)
• Adjusted earnings per share (EPS) up 1.7% to $0.61 per share

Chief executive Doug McMillon said:

“We delivered a solid first quarter in a dynamic operating environment. We’re serving customers and members in more ways, which is fuelling our growth. We’re well positioned, maintaining flexibility to navigate the near term while continuing to invest to create value for the long-term.”

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ii round-up:

Walmart Inc (NYSE:WMT) detailed earnings that beat Wall Street hopes, with the giant retailer flagging a first time move into profit for its online business. 

First-quarter currency adjusted sales rose 4% to $168 billion (£126 billion), driving a near 2% gain in adjusted earnings year-over-year to $0.61 per share. Analysts had forecast earnings of $0.58 per share. 

The Arkansas headquartered company continues to forecast a gain in full-year profit of up to 5.5% but with management warning of higher shelf prices for customers near-term given US trade tariffs. 

Shares in the Dow Jones company are up 2% in US trading having come into this latest news up by around 50% over the last year. That’s comfortably ahead of a 6% gain for the Dow Jones. Membership retailer Costco Wholesale Corp (NASDAQ:COST) are up by about a quarter during that time.   

Walmart operates more than 10,700 stores and numerous websites in 19 countries. Global online sales during the period, led by store fulfilled pickup, rose 22%.

Sales at the group’s core US Walmart business, aided by market share gains, climbed 3.5% to $112.2 billion. Sales at the Sam’s Club membership outlets increased 2.9% to $22.1 billion. 

Currency adjusted international revenues, and helped by higher Chinese demand, improved 7.8% from a year ago to $32.1 billion. Overseas related profits however, fell 6% to $1.4 billion

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging a fair value share price of $115. 

ii view:

Started in 1962, Walmart today serves approximately 270 million customers each week, selling items ranging from food & drink to clothes, toys and furniture. Walmart US outlets generated most sales in 2024 at 68%, with Sam’s Club a further 14% and operations overseas the balance of 18%. 

For investors, potential trade tariffs on products imported from the likes of China will likely raise product prices, pushing some customers to economise and potentially buy less. Higher shelf prices may increase inflation, leaving interest rates higher for longer. Cuts to US government workers, many likely shopping at Walmart, could now crimp demand, while a forecast one-year price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. 

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On the upside, a move into profitability for the online business is a clear positive. Other US retailers will be suffering similar trade related challenges, with Walmart’s size giving it a competitive advantage. Net debt of $37 billion at the end of 2024 compares to a stock market value of over $700 billion and points to a strong balance sheet, while the dividend has grown consecutively for more than 50 years, with the 2024 increase its biggest in a decade, leaving the shares sat on a forecast future yield of around 1%. 

On balance, a degree of caution looks sensible, although this retail giant with a focus on consumer value does appear to remain worthy of its place in diversified investor portfolios.

Positives: 

• Continued share buybacks
• Focus on costs

Negatives:

• Uncertain economic outlook
• Subject to currency moves

The average rating of stock market analysts:

Buy