Walmart reported strong quarterly results (Feb-Apr 2024 quarter) both on its top and bottom line. U.S. comparable-store sales increased +3.8% (excluding fuel), inclusive of strong e-commerce results (+22%). Physical store comparable-store sales of +1.0% came from transactions and traffic (Placer shows traffic up 1.2% when including Walmart Neighborhood Market and excluding Leap Day). E-commerce was driven by curbside pickup orders, store delivery, and the Walmart.com marketplace. Walmart+ membership grew double-digit and store delivery sales now exceed curbside orders. Driving gross margin and profits were sales leverage, strong advertising (+26%), membership income, and lower markdowns. Offsetting these drivers was adverse sales mix as general merchandise categories declined; this adverse mix is now three years running. Contributing to the sales decline was a mid-single-digit decline in prices.
Grocery sales increased by a mid-single-digit rate, demonstrating market share gains as households are choosing Walmart’s value (something WSJ also highlighted this week). The pet category also remained strong for Walmart, which is a negative for pet specialty retail.
Regarding the U.S. consumer, Walmart U.S. President and CEO John Furner noted that, “the consumer has been pretty consistent. I think is the best word we would use, consistent spending across income groups. We've had more growth...on the high-end consumer. That remains true. We're very focused on value, flexibility, and convenience and that's working across income segments. It's great to be in a position where we have store conditions...What is also helping us is our food categories. Broadly across the store, we have almost 7,000 rollbacks. That's really helping it in our food categories. We see an even larger spread between eating at home, preparing meals at home and eating out, which we think can help Walmart over the remainder of the year.”
Walmart CEO Doug McMillon said, “We're making progress lowering prices [not just pet, but overall]. Our rollback count is up and customers are responding to our price leadership...we're improving the experience of shopping with us. Our store remodels look good and are performing well. Plus, our curbside pickup and delivery capabilities are improving as indicated by our customer experience metrics. Globally, we completed nearly 70 remodels during the quarter, and we're on track to do more than 900 this year. We're making it convenient to shop with us, and our customers and members are rewarding us with growth as we save them time...We also introduced on-demand early morning delivery to customer doorsteps as early as 7:00 AM and as quickly as 30 minutes. Globally, same-day delivery is available from more than 6,500 locations. In Walmart U.S., over the last 12 months, 4.4 billion items were delivered same or next day with about 20% of those delivered in under 3 hours. Delivery times are getting faster, and the cost of delivery is coming down at the same time...We expect to continue to earn healthy levels of sales growth and simultaneously grow profit faster than sales this year while managing our price gaps and investing in our associates at the same time...As it relates to the core strong same-store sales growth, combined with good inventory management, resulted in strong profit flow-through.”
On having merchandise that appeals to higher-income households, McMillon commented, “...we’ve punched below our weight on general merchandise, specifically in apparel and home for a really long time, maybe forever. And I think the progress that we're seeing now is driven by the in-store remodels and in e-commerce. The Marketplace is a great opportunity, but [first-party sales] will be important, too. We've now got tools that we can use to grow the general merchandise business that we didn't have before.” Walmart CFO John David Rainey said, “In terms of what we're doing to be more attractive to that higher-income household, the word we've been using here is convenience. We are not just a play for value anymore. We talked about the number of units that we've shipped in the last 12 months, which is on par with any e-commerce player in the world. That shows that customers are coming to us and we're a consideration where we haven't been before. And convenience matters to someone irrespective of what your paycheck is, irrespective of what your income level is. We expect that to be durable.”
The table below shows that Walmart locations in Texas saw a +3.7% increase in trade areas with household incomes over $100K, but only +3.0% increase in trade areas with household incomes below $50K. (We use Texas to create more granularity of demographic changes as looking at it on the nationwide level can blur the nuance.) We estimate that the larger spending by higher income households would amplify the spread by roughly 600 basis points (assuming a 5% increase in spend per household). Additionally, this is showing physical store sales; store delivery and curbside would further amplify the spread by 300 basis points or more. Summing these together, the increase from visitors from trade areas under $50K would be +3% in spend (assuming flat spending per household), whereas the increase from visitors in trade areas with household incomes over $100K would be +12%.
Sam’s Club comps increased +4.4%, inclusive of strong e-commerce results (up +18% year-over-year). Physical store comps of +2.6% came from transactions and traffic. E-commerce was driven by curbside and store delivery. Driving gross margin and profits were sales leverage, membership income (+13%), advertising revenue, and lower markdowns. Offsetting these drivers was an adverse sales mix as general merchandise categories declined due to price deflation. Units sold increased for apparel, jewelry, home, hardlines, and electronics (our visitation data indicates mid-single-digit increases in Sam's Club visitors for much of the quarter). Grocery sales were up high-single-digits, demonstrating strong market share gains as households are choosing Sam’s value. Pharmacy was up double-digits (for Walmart as well) which reflects GLP-1 scripts (roughly $1K per month without insurance).
Upscaling Sam’s merchandise offering and modernizing its member touchpoints were foundational to the positive turn of Sam’s over the past two years. Scan & Go with no receipt reviews will be rolled out to all stores by year-end. Membership counts in the U.S. hit record levels, that, plus trade up to the Plus-level yielded a 13% increase in fee income; Sam’s Plus hit a 54% penetration rate, up 330 basis points year-over-year. That penetration gain also demonstrates wallet share gains from more affluent households.
We're also starting to see a ripple effect from 99 Cents Only store closures. When the chain liquidated its store merchandise in late March and April, we were taken by surprise by the throngs of shopper shifting through the stores and shelves, many pushing carts filled with merchandise. The chart below shows the spike in visits which reached mid-teens during April and it was sizable enough to lift the combined traffic of 99 Cents Only, Family Dollar, and Walmart in the Los Angeles market. The gains by 99 Cents Only came at the expense of the other two retailers. However as shown in the chart, Walmart has bounced back, whereas Family Dollar has not. Family Dollar Los Angeles went from leading Family Dollar's markets nationwide, to lagging by 140 basis points. By contrast and not shown below, Walmart Los Angeles went from lagging Walmart California to leading it the past few weeks. As such, it appears that Walmart is one of the beneficiaries of 99 Cents Only, not Family Dollar.
