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Walmart Raises Full Year Guidance As Q1 Earnings Beat Estimates Led By Grocery Business

WalmartWMT Inc. announced first quarter 2023 earnings with total revenue of $141.6 billion, up 2.4%, negatively affected by $5 billion due to divestitures. The world’s largest retailer raised full year guidance as earnings beat estimates due in part, to an increase in the grocery business. Walmart achieved these metrics during a difficult spring for the retail industry.

Walmart e-commerce also contributed to the retailer’s positive financial report with U.S. first quarter comp store sales growing 3.0% and 9.0% on a two-year stack. Walmart U.S. eCommerce sales grew 1% or 38% on a two-year stack.

Sam’s Club comp sales increased 10.2%, and 17.4% on a two-year stack. Membership income increased 10.5%., the largest quarterly member sign-up on record for Sam’s Club in the U.S. Walmart International net sales were $23.8 billion, a decrease of $3.5 billion, or 13.0%, negatively affected by $5 billion due to divestitures.

Consolidated operating income was $5.3 billion, a decrease of 23.0%, negatively affected by $0.3 billion from divestitures. GAAP EPS were $0.74, and adjusted EPS of $1.30.

“Across our businesses we had a strong topline quarter,” said Doug McMillan, president and CEO of Walmart Inc. “Bottomline results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected. We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.”

While the topline was strong in the first quarter, the bottom line was “below our expectations due primarily to three areas that negatively affected operating income in our U.S. businesses, both in Walmart and Sam’s Club,” McMillon said. “Each of these items represents about one-third of our overall profit miss.”

Net sales in the 2023 first quarter for Walmart U.S. increased 4% to $96.9 billion over the first quarter of 2022. Walmart International net sales in the first quarter of 2023 decreased 13% to $23.8 billion, from $27.3 billion in last year’s first quarter. Sam’s Club net sales increased 17.5% to $19.6 billion, from $16.7 billion a year earlier.

Net income per share in the 2023 first quarter was .75 cents, a 22.7% decline from the first quarter of 2022 of .97 cents.

Consolidated net income attributable to Walmart was $2.05 billion, a 24.8% decline from the first quarter of 2022’s $2.73 billion. Consolidated operating income was $5.3 billion, a decrease of 23%, negatively affected by $0.3 billion from divestitures.

The company’s guidance assumes a generally stable consumer in the U.S., higher supply chain costs, continued pressure from inflation and a mix of products and formats globally.

Walmart’s updated guidance sees consolidated net sales increasing about 4% in constant currency. Excluding divestitures, the increase will be 4.5% to 5.5%. Net sales for the year are expected to increase 3.5%, up from a prior range of 2.5% to 3%. Adjusted EPS for the year are slated to range from $6.10 to $6.20, above the $5.90 to $6.05 of the prior forecast. Analysts had forecast sales to rise 3.81% year over year and EPS to hit $3.14. Effective tax rate will be unchanged at 25% to 26%. EPS is predicted to decrease 1% or be unchanged and flat to last year’s 5% to 6% increase.

Capital expenditures will be at the upper end of 2.5% to 3% of net sales with a focus on supply chain, automation, customer-facing initiatives and technology.

Prepaid expenses and other current assets were $83.2 billion on April 30, 2022, up from $81.07 billion in 2021.

“Inflation is playing a role in the top and bottom line, and the pace of change created a timing issue for us in Q1,” said McMillon. “We’re adjusting to the mix change and operational costs. Importantly, we expect the solid top-line performance to continue and we’re taking up sales guidance for the year. Customers and members are coming to us for value.

“We’re making progress executing our strategy,” McMillon said. “The flywheel we’re building is better for customers and members, and the more diversified approach to profitability is making the company stronger. We’re excited about our newer businesses and our plans to automate much of the supply chain. We’re committed to our 4% topline growth and greater than 4% profit growth algorithm. Our strategy and mid- to long-term financial plans support that despite the turbulence we’re managing through today.”

Highlights from the international business included the launch of Flipkart Health+ in India, following Walmart’s acquisition of online pharmacy platform “It’s enabling us to increase access to affordable care in that country. The team recently launched the Flipkart Health+ app, which is available on low bandwidths so it’s useable for more people in more cities. And in Canada, we’re growing our number of primary care clinics to 87, and in partnership with TELUS Health, we’ll launch digital pharmacy services.

“We’re also making progress with financial services,” McMillon said. “In India, PhonePe recently processed more than 100 million transactions in a single day. With annualized total payment value of about $770 billion, it’s one of the fastestgrowing businesses in this space.

McMillon also called out Cashi, the digital wallet in Mexico. In the U.S. through a joint venture with Ribbit Capital, Walmart completed the acquisitions of two fintech businesses, One Finance and Even. The company combined the businesses under the ONE brand.

“Around the world, we can help our customers and members transact seamlessly, digitally, and help them strengthen their lives financially,” McMillion said. “In Walmart U.S., our sales performance was ahead of plan and we continued to gain share in grocery. Inflation is lifting the average ticket and our transaction count in stores went up slightly versus last year. Overall basket size is up as you would expect, but units per basket are down a bit.

“Price leadership is especially important right now and one-stop shopping becomes more than just convenience when people are paying over $4 a gallon for fuel,” McMillon said. “We’re making progress on the eCommerce experience as in-stock improves and the team continues to improve on the app and site experience and delivery accuracy and speed. Our eCommerce operations were affected early in the quarter as we lost one of our largest fulfillment centers to a fire, which created some cost inefficiencies for us.”

“Around the world, we’re still living in environments with COVID present and navigating the economic and other impacts to deliver for customers and members,” McMillion said, in ending his comments. “As always, our associates are doing a great job, and we’re grateful to them. We continue to change and strengthen our company and position it for a strong future.”

Brett Biggs, executive vice president and chief financial officer, warned that the costs associated with inventory and fuel prices in the U.S. will “stretch some into Q2, but the scheduling-related costs have been mitigated. Most of the increased inventory and related costs were due to buying over the past several quarters with a keen focus on in-stock, and now we’re in a short period of rightsizing it,” Biggs said. “The current sales strength and warmer weather in the U.S. give us confidence in our ability to work through this fairly quickly and strategically.”

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