Stimulus spending, sheltering in place help Walmart results exceed expectations

Walmart exceeded Wall Street expectations with its quarterly revenue and earnings on Tuesday and reported record US online sales after consumers rushed to stock up on necessities during the coronavirus pandemic.

Shares in the world’s top brick-and-mortar retailer were up 2 percent in morning trading and about 7 percent so far this year, far outpacing Wall Street’s blue chip index, which is down nearly 14 percent for the year.

Walmart, like many other essential businesses, has seen a surge in demand late in March and early in April as “shelter-in-place” orders made consumers stock up on staples while limiting their trips to the grocers.

The retailer said that though demand for toilet paper, surface cleaners and groceries tapered off after initial hoarding, sales rebounded in the second half of April as consumers spent the money received as part of a government relief package.

“Toward the end of the quarter, another phase emerged — call it relief spending,” Chief Executive Doug McMillon told analysts. He said sales have risen for categories such as apparel, TVs, video games, sporting goods and toys.

Walmart executives said the stimulus checks have helped deliver a good start to the second quarter, but they did not expect spending to continue at the same pace.

The company offered little insight beyond that and pulled its forecast for the full year saying there was too much uncertainty because of the pandemic.

Walmart’s online business rose 74 percent in the first quarter, as its investments in store pick-up and delivery paid off right at the time when demand for such services soared.

It said the strength of its own online operation made it decide to discontinue, the online start-up it acquired in 2016 for $3.3 billion.

The business was undergoing an overhaul last year by integrating its retail, technology, marketing, analytics and product teams with Walmart’s own online business.

Walmart added that grocery pickup and delivery for food and other consumables reached record sales volumes and also saw high demand for electronics, toys and sporting goods in the quarter.

Overall, sales at US stores open at least a year rose 10 percent, excluding fuel, in the quarter ended April 30. Analysts had expected a gain of 8.8 percent, according to IBES data from Refinitiv.

Total revenue rose 8.6 percent, to $134.6 billion, also beating analysts’ estimates for $132.79 billion.

Responding to a surge in demand, the group has been ramping up hiring, temporarily increasing wages and spending more on the maintenance of its stores and fulfillment centers and said additional costs related to the pandemic reached nearly $900 million.

That pushed operating margins down 62 basis points, to 20.5 percent, in the quarter, but operating income still rose 5.6 percent, to $5.22 billion, in the quarter. Adjusted earnings per share at $1.18, beating Wall Street expectations of $1.12.

“Walmart’s online business was able to largely handle this growth surge within its existing capability,” Moody’s analyst Charlie O’Shea said, describing the drop in margins as “fairly benign.”

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