Walmart: Earnings Beat And Guidance Raise Reinforce My Bullish View
Contributor since 2012 / 10564 Followers
Summary:
- Walmart delivered a significant +11.6% earnings beat in Q1 FY 2024, thanks to share gains and positive operating leverage effects.
- Walmart raised its FY 2024 EPS guidance by +2.9% on expectations of a more favorable revenue mix in the future.
- I stick with a Buy rating for Walmart, taking into account WMT’s above-expectations first quarter EPS and full-year bottom line guidance.
Justin Sullivan
Elevator Pitch
My Buy investment rating for Walmart’s (NYSE:WMT) remains unchanged. I previously previewed Walmart’s financial results for the fourth quarter of fiscal 2023 (YE January 31) with my prior article published on February 15, 2023.
I focus on the review of WMT’s Q1 FY 2024 earnings and the analysis of the company’s forward-looking guidance with this latest update. Walmart’s first quarter earnings beat implies that the company continues to take market share away from competitors as its value-focused positioning gains favor with consumers in difficult times. Separately, the company’s better-than-expected full-year guidance indicates that WMT is confident in growing the sales contribution of high-margin businesses such as advertising in the future.
As such, Walmart’s FY 2024 guidance raise and higher-than-expected Q1 EPS reinforce my favorable opinion of WMT, which supports my Buy rating for the stock.
The Sell-Side’s Expectations Of WMT’s Q1 Financial Results
Prior to Walmart’s Q1 FY 2024 earnings announcement on May 18 before trading hours, the analysts were forecasting slower top line growth and earnings growth deceleration for WMT in the first quarter as per consensus estimates.
Specifically, the market’s consensus financial projections suggested that WMT’s revenue will expand by +5.5% YoY to $148.0 billion for Q1 FY 2024 as compared to its +7.3% YoY top line growth in Q4 FY 2023. Also, Walmart’s non-GAAP adjusted earnings per share or EPS was projected to increase slightly by +1.5% from $1.30 for Q1 FY 2023 to $1.32 in the most recent quarter. As a comparison, WMT achieved a +11.8% bottom line growth in Q4 FY 2023.
Walmart’s actual financial performance for the first quarter of fiscal 2024 turned out to be much better what the market had expected earlier as discussed in the next section.
Walmart’s Actual First Quarter Financial Performance Was A Positive Surprise
WMT’s actual Q1 FY 2024 results came in above expectations, as the company delivered revenue growth acceleration and a faster pace of earnings expansion in the most recent quarter.
As indicated in WMT’s earnings presentation slides, revenue for Walmart rose from $141.6 billion in Q1 FY 2023 to $152.3 billion for Q1 FY 2024. This implied that Walmart’s top line growth accelerated from +7.3% for Q4 FY 2022 to +7.6% in Q1 FY 2024, and WMT’s actual first quarter revenue beat the consensus forecast by +2.9%.
In my mid-February write-up for WMT, I emphasized that “retailers with a focus on value like Walmart should continue to be favored by consumers” in an “uncertain economic environment”, and this is exactly what happened in the recent quarter. WMT’s Q1 FY 2024 US comparable sales growth was +7.4%, which was much better than the consensus estimate of +5.3% (source: S&P Capital IQ). The star for Walmart was the grocery category that witnessed a “low double digit” increase in comparable sales growth for the first quarter driven by “continued market share gains” as highlighted in its results presentation slides.
Walmart’s actual Q1 FY 2024 normalized EPS of $1.47 was equivalent to a +13.1% YoY bottom line growth which was superior to the company’s +11.8% earnings expansion for the final quarter of the prior fiscal year. Notably, WMT’s substantial +11.6% EPS beat in the recent quarter was a positive surprise.
At the company’s Q1 FY 2024 results call, Walmart attributed the above-expectations first quarter EPS to the fact that “sales outpaced our plan and cost leverage exceeded plan.” In other words, WMT’s stronger than expected revenue growth and resulting positive operating leverage effects had allowed the company to report a significant earnings beat for Q1 FY 2024.
In the subsequent section, I discuss about WMT’s financial guidance, which also surpassed the market’s expectations.
WMT’s Full-Year Earnings Guidance Was Better Than What Analysts Had Expected
Walmart lifted the mid-point of the company’s full-year FY 2024 bottom line guidance by +2.9% from $5.975 per share previously to $6.15 per share now, and this was above the market’s prior 2024 normalized EPS forecast of $6.14 (source: S&P Capital IQ). WMT’s FY 2024 earnings guidance is backed by assumptions of a +3.50% top line growth and a +4.25% increase in operating profit for the current fiscal year.
WMT explained at its most recent quarterly results briefing that its updated FY 2024 guidance takes into account its above-expectations for “Q1 performance and our expectations for Q2.” The company’s management commentary suggests that Walmart’s positive revenue and earnings growth momentum for the first quarter can be sustained into the second quarter at the very least.
In addition, Walmart also highlighted at its Q1 earnings call that it expects “a more pronounced impact from some of the initiatives that we discussed at our Investor Day around these higher-margin, higher growth areas” in 2H FY 2024. This means that WMT sees itself realizing a more favorable sales mix with higher-margin businesses accounting for a larger proportion of its top line going forward.
WMT had previously stressed at its Investor Day in early-April that there are “these smaller parts of our business that are higher margin, but growing at a much faster rate” which should boost its future profitability. Walmart was making reference to its “advertising, data, and membership” businesses which boast high “contribution margins” and have delivered a +40% income CAGR for the FY2020-2023 period as disclosed in its Investor Day presentation.
In a nutshell, Walmart’s full-year FY 2024 earnings guidance is achievable, and this points to a reasonably favorable outlook for the company in the near term.
Concluding Thoughts
Market share gains and revenue mix optimization are the two key earnings growth drivers for Walmart. Walmart’s recent financial performance and forward-looking guidance indicate that these two key drivers are still intact. Therefore, I continue to have confidence in Walmart’s prospects, and this translates into a Buy rating for WMT.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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