Walmart Starts Off Fiscal 2022 Better Than We Expected

Despite increasingly difficult comparisons, wide-moat Walmart WMT saw strong fiscal 2022 first-quarter performance, with 3% revenue expansion spurred by growth in all channels and rising general merchandise sales. This should lead us to lift our near-term targets and our $124 fair value estimate by a mid-single-digit percentage. We attribute the results to transitory pandemic-related volatility and still expect low-single-digit sales growth and 4%-5% adjusted operating margins long-term. We suggest investors await a more attractive entry point, considering near-term volatility and intensifying competition. Each of Walmart's divisions saw good results, with the namesake U.S. unit posting 6% comparable sales growth (excluding fuel), international seeing a similar total revenue uptick (excluding divestitures), and Sam's Club up 7% on a comparable basis (excluding fuel). With Walmart lapping customer stock-ups in the early days of the pandemic, we had been more pessimistic, expecting roughly flat, low-single-digit, and flat growth, respectively. Stimulus played a role, particularly in the U.S., where we were encouraged by Walmart's general merchandise strength (low 20s growth). Along with strong sales and falling pandemic-related costs, the mix shift toward those items drove more than 110 basis points of consolidated operating margin improvement to 5%; we expected closer to 4%. Given year-to-date results, management now expects fiscal 2022 adjusted diluted EPS to rise by a high-single-digit percentage (slight decline previously); our prior estimate (3% dip) should rise similarly. Consolidated e-commerce sales rose 37%, with continued strength in grocery and other categories. Digital sales should ease as the year goes on and store traffic rises, but we still expect Walmart's omnichannel investments to deliver long-term benefits, with e-commerce sales accounting for about a third of the namesake U.S. unit's sales by fiscal 2026 (from 12% in fiscal 2021).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.