Walmart’s advertising, ecommerce businesses thrived in Q1

The news: Walmart’s courtship of high-income consumers helped the retailer beat expectations for same-store sales, revenues, and profits in Q1.

• US comparable sales excluding fuel grew 3.8% year over year (YoY)—which Walmart attributed mainly to an increase in transactions.
• Revenues rose 6% YoY to $161.51 billion, beating FactSet’s consensus estimate of $159.57 billion.
• Adjusted earnings per share rose to 60 cents, outpacing LSEG’s forecast of 52 cents, thanks to Walmart’s fast-growing ad business and Walmart+ membership offering.

Behind the numbers: Walmart’s Q1 successes were “not inflation-driven results,” CEO Doug McMillon said. The company’s focus on value, investments in convenience, vast product selection, and other improvements in the shopping experience are helping it win over more shoppers and capture a larger share of general merchandise sales.

• The retailer’s pursuit of affluent consumers is proving to be a crucial growth driver. Upper-income households once again accounted for the majority of Walmart’s share gains during the quarter in categories like fashion, home, and hard goods.
• Walmart is working hard to keep those shoppers loyal even as inflationary pressures wane. The company is pushing its locations to maintain cleanliness and reduce out-of-stocks, while remodeling stores, improving the checkout process, and allocating prime shelf space to display trendy clothing and home goods.
• Convenience is also a crucial factor in Walmart’s ability to win over wealthy consumers. “People with money prize convenience and we are getting more convenient all the time,” McMillon told The Wall Street Journal.
• Judging by the retailer’s ecommerce performance, that certainly seems to be true: US ecommerce sales rose 22% YoY, helped by expanded delivery options as well as considerable growth in the number of SKUs available on Walmart’s marketplace.

Revenue drivers: Strength in the retailer’s core business is helping to build momentum for its other initiatives—advertising chief among them.

• One-third of Walmart’s Q1 revenue growth came from newer segments like its ad business, Walmart+, and data ventures, CFO John David Rainey said on the company’s earnings call.
• Walmart Connect sales grew 26% YoY, thanks to a nearly 19% increase in the number of active advertisers on the platform.
• The retailer is also looking to take a page from Amazon’s playbook by generating more revenues from third-party services. Over one-quarter (28%) of merchants currently use Walmart’s fulfillment capabilities, while their spending on advertising grew by over 50% in Q1.

The big takeaway: Walmart has long been known for value—but the company is also trying to make a name for itself as shoppers’ go-to choice for convenience.

• Walmart hopes that tactic will enable it to draw a larger share of consumers’ wallets as well as keep Amazon from dethroning it as the US’ top retailer.
• We expect Walmart.com’s US ecommerce sales to grow 13.8% this year—faster than Amazon’s 10.5% growth, although its market share will be roughly one-sixth the size of the latter’s.