Walmart Sees Sales Growth Above 3%, Cuts Inventory by 4.2%

Key Takeaway

• Walmart raises full-year outlook, expecting net sales growth at the high end or above 3-4%, with adjusted EPS to meet or exceed $2.23-$2.37.
• Shift in consumer behavior towards value sees upper-income households driving market share gains; e-commerce sales up 22%.
• Strategic focus on high-growth areas and cost management, including a 4.2% reduction in US inventory levels and office consolidation.

Upbeat Financial Forecast

Walmart has revised its full-year outlook upwards following a quarterly report that surpassed expectations, signaling a robust performance amid ongoing inflationary pressures. The retailer now anticipates full-year net sales growth to be at the high end or slightly above its initial forecast of 3 to 4 percent. Adjusted earnings per share are also expected to exceed or meet the upper range of the previously guided $2.23 to $2.37. This optimistic revision reflects Walmart's strong start to the year, with first-quarter revenues climbing 6 percent to $161.5 billion, outpacing analysts' projections of $159.5 billion.

Consumer Behavior Shifts

Walmart's recent performance indicates a shift in consumer behavior, with the company noting that its value proposition is particularly appealing to upper-income households. This demographic has been a significant driver of market share gains in the first quarter, continuing a trend observed in recent quarters. Despite a 3.8 percent increase in transactions at Walmart's main US operations, the average ticket size remained unchanged, suggesting that consumers are still looking for ways to maximize their spending power in the face of persistent inflation.

E-Commerce and Cost Management

E-commerce emerged as a significant growth driver for Walmart, with online sales surging 22 percent in the quarter. This growth is part of a broader strategy to cater to a wider range of consumers, including those seeking convenience and those from higher-income brackets. Walmart's Chief Financial Officer, John David Rainey, highlighted the company's efforts to maintain a lean operation, noting a 4.2 percent reduction in inventory levels in the US as supply chains normalize post-pandemic. Additionally, Walmart has announced plans to consolidate its office locations and streamline its workforce to further reduce costs.

Strategic Adjustments and Outlook

Walmart is adapting its strategy to focus on areas with higher growth potential and margins, such as its advertising business and the Walmart+ membership program. These moves, coupled with efforts to exit less profitable ventures like health clinics, are designed to bolster the company's operating income. Despite challenges posed by economic uncertainty and shifting consumer priorities, Walmart's performance and strategic adjustments position it well for sustained growth.

Management Quotes

• Doug McMillon, CEO of Walmart:

  "Managing a period of deflation in early 2024 has not come to pass."