Walmart Earnings: Solid Sales as Chain Benefits from Consumers’ Focus on Value

Walmart Stock at a Glance

• Fair Value Estimate: $148
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

Walmart Earnings Update

Our $148 per share valuation of wide-moat Walmart WMT should not change significantly after the company announced a solid start to fiscal 2024 (first quarter ended April 30). With the namesake domestic stores, international locations, and Sam’s Club all benefiting from consumers’ focus on value and redirection of spending toward consumables and everyday essentials, we believe Walmart is well-positioned for the turbulent economic environment. We still expect low-single-digit annual top-line growth rates and mid-single-digit operating margins over the long term. With the shares trading near our valuation, we suggest investors await a greater margin of safety.

Revenue rose 7.6%, with broad strength (7.4% adjusted comparable sales expansion at Walmart U.S. and a 7.0% increase at Sam’s Club; 12.9% constant currency net sales growth at Walmart International). Omnichannel efforts continued to contribute, with e-commerce sales up 26% worldwide as Walmart benefitted from its burgeoning ship-to-home, store pickup, and curbside offerings. Based on the strong start to the fiscal year, management lifted guidance, now calling for $6.10-$6.20 in adjusted diluted EPS (previously $5.90-$6.05). Our $6.17 estimate (excluding forecast share repurchases) should rise toward the top of the range.

We believe Walmart will continue to benefit from consumers’ retrenchment, with its membership offering, omnichannel capabilities, and expanding roster of marketplace sellers making the company better able to capture trade-down sales as customers more well-heeled than its typical demographic turn to the retailer amid economic turbulence. While the company indicates that year-over-year inflation is moderating, two-year stacked food inflation is above 20%, giving shoppers ample impetus to turn to Walmart for value. We believe the firm’s scale enables procurement and cost leverage that allow it to be particularly aggressive in the pricing it offers its patrons, factors which are difficult to replicate.