Walmart Raises Full-Year Guidance: Outpacing Peers with Impressive Growth

Fueled by a shift to groceries and digital advertising, the retail giant is making big gains.

On the heels of Target’s rough results, Walmart came out fast. America’s largest retailer announced an upward revision of its full-year guidance. The quarter’s big drivers were the maturation of the company’s advertising service and a shift towards groceries (where Walmart sells 1/5 of all groceries in America). Basically, the omnichannel strategy is dominating.

Here are the details:

Walmart is pushing past peers—if it even has any.

• Walmart reported consolidated revenue of $152.3 billion, representing a 7.6% increase from the previous year, while operating profit reached $6.2 billion, growing by approximately 17%.

• The rise in operating profit was primarily driven by the success of Walmart Connect, the company's US ad business, which saw a remarkable 40% growth.

• Walmart's U.S. stores achieved $104 billion in sales, a 7% increase from the previous year, and e-commerce sales showed a significant surge of approximately 24%.

• Walmart raised its full-year guidance to reflect the strong performance in Q1 and expectations for Q2, with projected net sales in constant currency growth of approximately 3.5%, anticipating faster growth in Walmart U.S. and International and consistent growth in Sam's Club.

The underlying profit story is still advertising:

• Global advertising sales increased over 30% in Q1, with its US ad business, growing by an impressive 40%.

• The number of marketplace sellers utilizing Walmart's ad capabilities has doubled in the past year. This generates a pinwheel effect for the company.

• Remember, advertising carries 70-80% gross margins—compared to the 20ish Walmart is used to.

  More Groceries

• A 23.7% gross margin was slightly down compared to the previous year due to a higher proportion of spending on groceries, which typically have lower margins than general merchandise.

• While the inflation in food and consumables impacted customers, leading to cautious spending in discretionary categories, Walmart's food and consumable sales increased by low double digits, contributing to overall revenue growth.

• The change in sales mix surpasses the category shift experienced in the previous year, indicating a substantial preference for groceries over general merchandise.

Pushing Manufacturers to Lower Prices

• Inflation is still high in processed foods and dry goods. Walmart wants to change that. “We think the persistent inflation in dry grocery and consumables is the biggest issue,” CEO Doug McMillion said.  

• The solution is to collaborate with suppliers to reduce costs across the board. “That’s what we’ve been focused on,” McMillion said, “and it’s taking longer in those categories than we want.”

Walmart wants to be more than just price.

• Walmart gained significant share in the pandemic, and made additional investments in e-commerce capabilities, online pickup, and delivery, providing customers with convenience and a superior shopping experience.

• “As you think about the future of Walmart as we have these new shoppers coming to us, as we have higher income shoppers coming to shop for not only grocery but general merchandise, we want to retain them.”CFO John Rainey told investors. “We want to retain them with better experiences, better product offerings, and we're seeing that in the actions that we're taking today.”

They said it:

CFO John Rainey on the company’s shift to value over price.

I think it's hard to just look at core retail and then separate out advertising, membership, fulfillment services. They are mutually reinforcing, which is what makes them so attractive to us. And it's those very new businesses that we think will make our profits inflect in terms of the growth rate relative to sales going forward. So the protect profits that -- please don't read too much into that, that's -- we clearly are excited about this part of our business, and this is the opportunity to have our profits go faster than sales.

On the high income cohort, I'll start there, and maybe John or others might want to jump in. But was probably most pronounced. And by that, I mean, the shift that we saw, it was most pronounced in the second quarter last year. When we got to the third and the fourth quarter, there was a little more balance between the various income cohorts in terms of share gain. And that's what we saw in the most recent quarter as well.

But I think the big story here is that -- it's around how value proposition for convenience is resonating. We've always been known for price, but I think the steps we've taken in the last 3 to 5 years to expand our e-commerce capabilities, to expand online pickup and delivery, you see that resonate with customers. And it doesn't matter what your monthly income is, everybody values convenience the same, so that's the big takeaway here. And I think it's an important point as you think about the future of Walmart as we have these new shoppers coming to us, as we have higher income shoppers coming to shop for not only grocery but general merchandise, we want to retain them. We want to retain them with better experiences, better product offerings, and we're seeing that in the actions that we're taking today.