All Hail, Mighty Walmart
I have regaled you with stories of how Walmart's (WMT) e-commerce business literally served as quartermaster to my family and I last year through my illness and our lengthy quarantine. The fact that folks are surprised that Walmart keeps on figuring it out does not surprise me. Walmart can bat clean up in my lineup any day.
Okay, so I am biased. Most talking heads probably won't admit that, but most are biased in one way or another. I am long Walmart, I am long Target (TGT) -- that name reports tomorrow morning. I am not long Amazon (AMZN) as I write this piece, but I usually am -- and chances are I will be in and out of that name twice before lunch. All that said, I root for Walmart. As if they were a ball team. Kooky, ain't it? Let's dig in.
The Quarter Reported
For the first quarter, Walmart posted adjusted EPS of $1.69, absolutely crushing expectations and good enough for earnings growth of 43%. GAAP EPS amounted to $0.97, and I often scoff at adjustments, but in this case the adjustment was attributable to $0.57 worth of net losses on equity investments and $0.15 for an incremental loss on the sale of operations in the UK and in Japan. So while all performance counts, this reflects nothing operational at all. Hence, both numbers need to be reported. As for revenue generation, the firm put a $138.3 billion print to the tape. That was also a beat, and was good enough for 2.7% year-over-year growth.
The numbers inside the numbers are even more impressive. U.S. comparable sales increased 6% versus the 0.9% that Wall Street was looking for. The firm noted market share gains made in groceries. Sam's Club comp sales increased 7.2%, well above the 1.2% growth expected. The impressive comps were supported by 37% growth in e-commerce (47% at Sam's Club, specifically), and this is key.
Why is this key? Heck, Walmart e-commerce sported 69% growth last time (Q4 2020) we did this song and dance. This is key because this is the first quarter where e-commerce comparables become so tough. Q1 2020 was the first quarter heavily impacted by pandemic panic e-commerce buying. Q2 will reflect a comp impacted for the entire three months, as Q1 2020 was not. The fact that Walmart could grow e-commerce by 37% off of a period where much of the country, including the heavily populated northeast, went into government mandated lockdowns is just incredible.
Consolidated operating income landed at $6.9 billion, up 32.3%, as consolidated gross profit increased 104 basis points after accounting for cost of sales, which grew just 1.2% and administrative expenses, up 2.8%. Taking a look at the balance sheet, net cash is considerably higher over three months, while total current liabilities have contracted significantly driven by the sale of those properties in the UK and Japan. Long-term debt is lower, as well. In all, the quality of this balance sheet has been strengthened.
Some firms barely lay out expectations for the current quarter and/or full year and leave a lot of blanks to be filled in. Not Walmart. Walmart provides so much guidance that one has to pore through the information and then determine what is and what is not pertinent to the individual investor trying to make their own decisions.
For the current quarter, Walmart comp sales growth up low-single-digits excluding fuel, and increased guidance for both EPS and operating income from expecting a mid-to-high single-digit (%) decline to a low-to-mid single-digit (%) decline.
For the full year, Walmart increased expectations for consolidated operating income from a slight decline in constant currency, to increase mid-single-digits (%) in constant currency. The firm also moved from a slight decline in EPS to a high-single-digit (%) increase.
Interesting chart. Readers will easily see the cup, as well as the handle that actually formed on a second attempt earlier in May. Relative Strength is good, but certainly not overbought. The daily MACD appears to give those long this stock exactly what they want to see. Now, for a jumble of information that I consider to be on balance, positive.
This morning's gap-up opening has been accelerated as the share price took (and held?) both the 200-day SMA (drawing in portfolio managers) and the 21-day EMA, drawing in the swing crowd. Will this morning's gap have to fill? Most likely, at some point it will. Readers will note that this morning's gap up did fill the gap down (also created by earnings) back in mid-February.
Target Price: $170
Panic Point: $130.