Walmart's Earnings Beat: What to Watch Next

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Walmart beat what had already been raised revenue and earnings expectations for the first quarter, begging the question of how long the company’s current tailwind will last.

Walmart  (WMT) - Get Report shares rose as much as 1.4% Tuesday, before the gains moderated to 0.65%, still far outpacing the S&P 500’s gain of less than 0.1%. 

The exceptionally strong top line beat was attributable to high volumes of food and staples items sales, management said, as customers dashed for groceries and essentials amid lockdowns. E-commerce sales were a huge driver of the results, rising 74% year-over-year, a far higher growth rate than what the company has normally seen in roughly the past year and a half.

However, management pulled guidance because it doesn’t know how long the current tailwind will last. 

Here were the earnings results versus Wall Street estimates:

  • Revenue: $134.6B v. $131.47B
  • Same-store-sales: +10% v. +7.2%
  • Earnings per share: $1.18 v. $1.13

The operating margin was 3.8%, a bit below what the company hopes to achieve in the future. The margin was driven down by a higher sales mix to the lower gross margin staples and grocery products. Also, costs related to safety pressured the operating margin. 

Still, the current rate of volume increase is a recipe to grow the business solidly for the short-term. Walmart’s average ticket in the U.S. rose 16% year-over-year, meaning that the average customer spent that much more for the quarter over last year’s quarter. 

But with the stock up 8% for the year already and trading at almost 26 times the next 12 month’s earnings, investors may be pricing in upward earnings revisions for the next year. The stock usually trades at roughly 22 to 23 times earnings.

The question for short-term investors is how long the current lockdown-driven tailwind will last. Analysts may have a hard time putting their finger on that, as the uncertainty, as management noted, is high. 

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