Walmart reported a surge in sales and profit in its quarterly report due to a rise in demand for household essentials. Walmart is only one of the few retailers having an omnipresence business model in the industry. Although Walmart is reaping the rewards, the company executives are cautious of estimating the future numbers due to disrupted supply chains across the globe.
Consumer spending dropped drastically due to stay-at-home orders but cash flowed to big retailers like Target, Costco & Walmart. Americans have spent heavily at the initial phase of the lockdown. Hoarding and stockpiling grocery staples, entertainment, education, fitness, etc. both online and offline. With the recent dispersion of stimulus checks the spending has increased significantly in the past few weeks. This is seen in consumer buying behavior. Along with the essentials, consumers have directed a part of the income/stimulus package to discretionary category items. The sales spiked in the month of March but was not that effective in April. At the end of April, sales spiked due to the distribution of the stimulus package.
Post lockdown, Walmart is selling more in a couple of hours than what the company would sell in days. To match customer needs and get a supported supply chain, Walmart hired additional 235,000 workers. Walmart is already the biggest employer in the world employing more than a million workers.
The Monday earnings report from Walmart let to jump of its shares. The shares rose 1% and has gained 8.5% this year. Compared with the 12.4% decline of the S&P 500, it is evident that the market is having positive sentiment for Walmart. Analysts predicted an EPS of $1.09 on revenue of $130 billion. But analyst’s expectations were overmatched when the company reported an EPS of $1.18 on revenue of $135 billion. Food, consumables, health, and fitness sales have gone up by 10% across the U.S. Since most of the sales have occurred online, E-commerce sales have soared 74% in a quarter. The number of customers on online grocery stores have quadrupled itself in a quarter. But industry experts are afraid that come of them may go back to old habits once the situation is normal.
Walmart revenue was already on a steady growth trajectory prior to the pandemic and lockdown. But with the abrupt shift to e-commerce, Walmart’s operating income grew by 6% (approximately) in the first quarter of the years. Much of this is can already be seen in the share price of Walmart. The retail giant’s share reached an all-time high last month and has outpaced the U.S. market by 17 percentage points. Walmart’s results show the rapid shift of Americans from discretionary items to staples.
Source: Business Quant
While the pandemic has provided functional retailers and e-commerce players an opportunity, its supply chain has really taken a hit. Walmart remained functional even after lockdown due to its inventory and supply chain supremacy. The retail company utilized it to supply groceries across its 4,700 stores in the U.S. But the retail giant struggled to keep up with the unprecedented demand. In its recent most report, Walmart reported a fell off 6% in a quarter due to out-of-stock goods.
Strong sales helped the retail giant to offset additional expenses related to coronavirus. Walmart expenses are directed towards disinfecting stores, providing bonuses, and higher pay to workers. Not to mention additional 235,000 workers hired recently. As of last month, around 150,000 workers were on paid leave. Walmart has temporarily closed its optical and auto care areas, cutting expenditure were not required. The retailer is also cutting expenses on company travel, consultation fees & marketing campaign. Walmart has already announced bonuses for the coming quarters which may worry some investors. But with the rush of new customers, the retail giant can offset the cost in the long run.
The company is profiting from its omnipresence positioning in the market. Apart from its brick and mortar stores, Walmart was also focusing on its e-commerce presence. In the times of pandemic, the company has shifted its dependency on e-commerce more as compared to its brick and mortar stores. But the shift does not come with challenges. E-commerce platforms offer very little margin as compared to traditional stores. According to Walmart CEO, the solution to this is to simply sell more.
Analysts believe that Walmart has strong business fundamentals. With its e-commerce platform’s increased sales, there is positive sentiment for Walmart among investors and analysts. The retail giant is also making its mark into groceries, where it is long been fighting to take share. With limited players in the market and many filling for bankruptcy, Walmart’s performance is indeed impressive. But, with promising numbers and multiple challenges ahead, investors will be tuning in closely if the sales boom will continue or lose steam.