Walmart Hits All Time High On Blowout Earnings From Coronavirus-Linked Stockpiling

Walmart reported blowout Q1 results, boosted not only by record high pickup and delivery as a result of the coronavirus pandemic, but also a 74% increase in online sales, as US consumers scrambled to stockpile products during the pandemic lockdown.

Walmart reported EPS of $1.18, beating expectations of $1.12, on Revenue of $134.622BN, also well above the $132.79BN expected, even as the company withdrew its full-year guidance due to the “significant uncertainty” surrounding the length and intensity of the coronavirus’s impact.

The retailer reported revenue growth of 8.6% in the quarter, the highest since the financial crisis.

Even though total transactions declined by 5.6%, the surge in the average ticket by 16.5% meant that comp sales rose by a whopping 10.0%, smashing expectations of 8.6% and the highest in almost two decades. It was “as a result of the health crisis and related stay-at-home mandates, customers consolidated store shopping trips with larger average baskets and shifted more purchases to eCommerce.”

As the company details, while February comp sales grew 3.8%, in mid-March, stock-up trips surged with March comp sales increased 15.4%. Store sales slowed during the first half of April but reaccelerated mid-month as customers spent government stimulus money resulting in a 9.5% April comp sales increase.

E-commerce sales were strong growing 74% and contributed approximately 390 basis points to segment comp sales growth.  The company also reported that “food and consumables sales were strong and grocery pickup and delivery reached all-time high sales volumes” and store pickup and delivery, ship to home, ship from store, and marketplace channels were strong throughout the quarter.

Sam’s Club Q1 US comparable sales ex-gas were also impressive, rising +12%, and smashing the estimate of +7.8%. According to a breakdown of the key performance highlights, in addition to the record stockpiling of paper ” Broad-based strength, including paper goods, laundry & home care and health & beauty”, the company saw a surge in spam sales as “canned protein, pasta and coffee/breakfast performed well.”

Some other observations from the report, via Bloomberg:

• Walmart will shutter the Jet.com online business, which it acquired four years ago, an unsurprising move as Walmart has been integrating Jet into its broader web unit over the past year.
• While Walmart’s sales are up, there’s concern that everyday items like food and toilet paper are less profitable than merchandise like clothing. Fulfillment costs also erode the profitability of online orders. Walmart said gross profit margins narrowed due to a shift to lower-margin categories and web sales along with markdowns and other investments to lower prices. But the e-commerce business lost less money than it did in the year-ago quarter.
• The “significant uncertainty” surrounding the length and intensity of the coronavirus’s impact prompted the retailer to withdraw its full-year guidance, given just three months ago. Still, Walmart said its “business fundamentals are strong.” Walmart incurred about $1.1 billion in additional expenses related to the coronavirus — from worker bonuses to additional cleaning and purchases of protective gear — according to Jefferies analyst Christopher Mandeville.
• The safety of Walmart’s massive U.S. workforce is also under scrutiny amid reports that some employees have died from Covid-19. Walmart started requiring all store employees wear masks in late April after earlier measures included social-distancing, plexiglass “sneeze guards” and limits on the number of customers allowed in the store at one time. The company’s executives will share more details on their response to the pandemic on a call with analysts this morning.

The CFO said that “The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including: the duration and intensity of the COVID-19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence.”

Finally, the company said it generated a whopping $5.3BN in free cash flow in the quarter, with operating cash flow doubling to $7BN compared to year ago, and while dividends were unchanged from a year ago, stock buybacks tumbled by 66%

On net, however, the quarter blew out expectations as can be seen in the stock price, which jumped over 3% from Monday’s close and is set to surpass the all-time high price set on April 16 of $132.33.