Updated 5:11 p.m. ET May 21
The Walmart Inc. retail machine continued to churn away in the first quarter.
Net income increased 18.8 percent to $5.3 billion, while adjusted earnings per share hit the 66 cents mark that analysts had figured on, according to Yahoo Finance. Adjusted operating income grew by 5.1 percent.
Revenues for the quarter ended April 30 rose 7.3 percent to $177.8 billion, a 5.9 percent increase in constant currencies. The top line was buoyed by quick growth in e-commerce, which was up 26 percent, and the advertising business, up 37 percent.
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The fashion business, again, got a C-suite shout out during a conference call with analysts.
“I’m really proud of the work that the fashion team has done in Walmart U.S.,” said John Furner, president and chief executive officer. “Another category that was a standout in the quarter was beauty. There have been a number of investments in the experience, both online and in stores that are making a difference.”
John David Rainey, chief financial officer, added that fashion had seen “outsized growth” in the first quarter.
“Fashion has a derivative benefit on other style-inspired categories like home decor, like beauty, where we continue to see great share gains and some of the best progress we’ve had in years. If you take beauty as a category, 75 percent of the growth in beauty came from new brands like La Roche-Posay and others. We’re expanding our assortment.”
The Walmart apparel business is having something of a renaissance under Denise Incandela, executive vice president of fashion at the U.S. division.
Private labels that have been around for years are being revamped as full-fledged brands with a cohesive point of view, while the stores brought in mannequins and sharpened presentation.
The third-party digital marketplace is also bringing in higher-end brands, followed by higher-end customers.
Everything about Walmart is big, but investors who briefly drove the company’s valuation over $1 trillion this spring are wondering how much more to expect. Shares of the company slipped 7.3 percent to $121.34 on Thursday.
Morgan Stanley analyst Simeon Gutman asked in a note to clients, “Is fine good enough?”
Gutman said that “the underlying [performance indicators] of Walmart U.S. digital flywheel remain intact” but aren’t seeing “outsized” flow-through to profits.
“Profit conversion needs to accelerate to justify and/or expand the valuation from here,” he said.
As the largest brick-and-mortar player in the world — and one that’s successfully chasing Amazon in advertising and e-commerce — Walmart is a bellwether for the industry.
The read from the first quarter is that the consumer is holding up — so far — against general inflation and higher fuel prices after the U.S. and Israeli war with Iran caused an oil shock.
But Walmart is competing mostly with Amazon these days and its results don’t necessarily translate to other retailers as it is working with such massive scale. It is also positioned well to pick up additional, higher-end shoppers when times get hard.
Walmart reiterated its forecast for the full year, calling for revenues to gain by 3.5 percent to 4.5 percent while operating income increases by 6 percent to 8 percent.
As Furner, who took the baton from veteran CEO Doug McMillon in February, looks to the future, he sees an ever-evolving landscape with retail at the core and a whole lot of technology.
“The pace of change is accelerating, and we’re moving more quickly to realize the benefits of the business model we’ve built,” the CEO said. “We’re investing in areas that strengthen our competitive position, including pricing and wages and benefits for our associates. Sparky, our AI shopping agent, is making this possible. Weekly active users are up over 100 percent just in the last quarter.
“Sparky is becoming more useful by the day,” he said. “You can now use Sparky in stores and automatically reorder items you have on repeat. Sparky even speaks Spanish these days. Customers using Sparky have an average order value that’s about 35 percent higher than non-Sparky customers.”