Amid a challenging economic environment for deal-seeking shoppers, Walmart posted consolidated revenue of $152.3 billion in the first quarter, up 7.6% year over year.
E-commerce sales grew 26% year over year globally, bolstered by the company’s investments in fulfilled pickup and delivery, for which Walmart is able to leverage its network of stores. Curbside pickup also drove 19% growth in e-commerce sales at Sam’s Club.
Among these strong results, however, the company reported that its gross margin fell 18 basis points, owing to “ongoing pressure from category sales mix globally,” CFO John David Rainey said Thursday during a call with analysts, adding that this was partially offset by a reduction in supply chain and freight costs.
A higher mix of sales in the food and consumables categories negatively affected gross profit, but strong expense management and progress with newer, mutually-reinforcing businesses helped the company grow profit ahead of sales at 17.3%, CEO Doug McMillon said.
Walmart’s strong first-quarter results stood in contrast with recent earnings reports by other big-box retailers: Home Depot reported a sales drop of 4.2% year over year; while Target saw comparable sales only grow 0.7% compared with a year ago.
“The list of high-quality names where we can realistically expect any earnings upside this year is small, but Walmart makes the cut,” Wells Fargo Securities analysts said in a note to investors.
Walmart achieved positive results even as some of its customers faced rising financial pressures. Sales in March and April lagged those in February as Walmart customers confronted reductions in SNAP benefits and lower tax refunds, Rainey said.
Walmart said it expects net sales in constant currency to grow 3.5% this year, an increase from previous projections of 2.5% to 3% growth. Among its plans, the company expects to grow sales from its omnichannel, or seamless online-to-offline business model.
“Our omni model is resonating with customers across income demographics who are seeking out Walmart digitally and in stores, curbside and via delivery,” Rainey said.
The company strives to diversify its revenue streams through “improved product and business mix,” including a focus on higher-margin categories like apparel and home goods, Rainey said. Walmart also plans to continue to make investments in supply chain and the optimization of distribution and fulfillment capabilities.
Despite a bullish outlook on Walmart, a higher digital mix “could permanently dilute the company's margin profile if efforts to curb losses through improved fulfillment, automation, technology, etc. are unsuccessful,” Wells Fargo Securities analysts said.
One of the biggest challenges the company faces is persistent inflation in dry grocery and consumables, McMillon said. The consumer price index rose 4.9% year-over-year in April.
“Working with those suppliers that are on the prepared foods and consumable categories to get costs down more as fast as we possibly can would help them drive unit volume, would help us with mix and free up cash for customers to use for discretionary goods,” he said.
