Key insights
- Walmart's Q1 earnings were in line with expectations, but the stock dipped due to high valuation. Key themes include value proposition amid consumer price sensitivity, leveraging AI for faster delivery, and a growing subscription model. While higher fuel prices are a concern for the consumer sector, Walmart's scale and value focus position it favorably, absorbing some cost increases. Overall, a slightly bullish signal for retail, tempered by valuation concerns.
Walmart (WMT) stock has taken a dip on its first quarter results that were in line with Wall Street estimates, reporting $177.8 billion in revenue and adjusted earnings of $0.66 per share. The retailer also reported 4.1% in US same-store sales growth and maintained its full-year outlook.
TD Cowen senior research analyst Oliver Chen reacts to Walmart's figures and explains how he is viewing value themes overtake the retail sector as consumers remain hard pressed by higher prices.
a lot's working. Uh I would say it's an in-lineish quarter. However, the valuation is pretty high coming into this print as well and the PE multiple is pretty elevated. Um that being said, the the quarter had a lot to love. The company's hitting on all and many cylinders. As we think about price and value, of course Walmart's well positioned everyday low price leader. Also, the big story here is technology and speed and AI. So, 90% of America within 10 miles of Walmart using Walmart as distribution centers and getting deliveries to customers in under 30 minutes. There's a flywheel here. The other point is a subscription model and stickiness. So about a third of the profits are membership as well as digital advertising. So many things working. In addition to being clean, fast and friendly and value driven and rollbacks and very price competitive, there's a tech component which involves speed and membership. And this is our best stock idea, so we see this as a good opportunity.
You're not concerned then about the sort of higher fuel prices. I mean it sounds like the company is assuming the fuel prices will continue to be at these levels for the remainder of the year.
It is concerning for the overall consumer sector, but as you zoom out, our top ideas are Walmart and Costco. Keep in mind, these are players with tremendous scale and also it's their core competency to offer exceptional value. So Walmart um absorb some of those price increases from fuel. And fuel is impacting the consumer in many ways from fertilizer cost to packaging cost to gas cost. Um so that that's going to weigh on the whole sector. You really have to be strategic about what stocks you're owning in this environment.
Um I I mean John David Ray just talked about those 7200 roll backs that they've put in place. Um but by the same token we're seeing their competitors also take price, you know, we or cut prices, I should say Kroger for example, doing the same. Um, so do you think you know, especially for the lower income consumers, is that the major driver of traffic right now and is Walmart winning those folks?
It's hugely important. This theme of value and the value- seeking consumer and also a consumer that's under pressure particularly middle and lower, given that higher gas prices are an instant tax to the consumer. So shoppers are looking for the best deal. They're also looking for speed. extremely um high performance scores in terms of customer satisfaction from getting deliveries in under three hours and they can do that with 30%, 36% of deliveries. Um, so the delivery speed matters plus value and that really wins the game. The other components of tech in addition to value include digital advertising growth as well as the marketplace model and both of those are growing over 30 to 50%. So some durability there, but as you think about Walmart, um this is a company that pioneered everyday low prices. So negotiating with suppliers from the perspective of scale as well as a simple low pricing model uh is really what the market loves and customers love as well.