Walmart Reports Strong Q1 Performance, But Fuel Costs Make Q2 Guidance Conservative

Walmart's stock fell on Thursday after the release of its first-quarter earnings, even though its core metrics exceeded market expectations. The second-quarter outlook, however, failed to meet expectations, disappointing investors.

In the first quarter, Walmart's total revenue grew 7.3% year-over-year to $177.8 billion, exceeding the market's expectation of $174.8 billion; its comparable store sales in the United States (excluding fuel) grew 4.1% year-over-year, surpassing expectations; its adjusted earnings per share were $0.66, in line with expectations.

The comparable sales of Sam's Club (excluding fuel) increased by 3.9%, and skyrocketed to 5.9% when including fuel. Global e-commerce sales grew by 26% year-over-year, Walmart Connect's advertising business grew by 44%, and the number of Walmart+ members achieved double-digit growth year-over-year and set a new record for additions in a single quarter.

The company achieved market share growth in all categories, including groceries, health and wellness, and general merchandise, with a particularly outstanding contribution from the high-income consumer group. However, due to concerns about the overall consumption contraction trend and the fuel cost pressures brought about by geopolitical conflicts in the Middle East, the company was extremely cautious in its future guidance.

Core Finance: Q1 Same-Store Sales Exceed Expectations, High-Income Group Drives "Anti-Inflation"

According to data compiled by LSEG, Walmart's core metrics in the first quarter were exceptionally strong:

• Same-Store Sales: Excluding fuel factors, Walmart's same-store sales in the United States grew by 4.1% year-over-year in the first quarter, significantly higher than the market's previous expectation of 3.8%. This growth was mainly benefited by the increase in membership fees and the robust growth of the advertising business, which led to an improvement of 29 basis points in gross margins in the U.S. region.

• E-commerce and Category Explosion: In the first quarter, e-commerce sales in the United States surged by 26% year-over-year, becoming the top contributor to the growth of the core U.S. market. In terms of categories, sales of groceries and general merchandise recorded a mid-single-digit growth, with the general merchandise segment, which includes non-essentials like clothing and electronics, achieving the largest market share increase in five years.

John Furner, CEO of Walmart U.S., said: "Our performance reflects our continued deep cultivation at the omnichannel level, that is, better shopping experiences, a richer range of products, and faster delivery services."

John David Rainey, Walmart's Chief Financial Officer, added in an interview with Bloomberg News that the overall health of broad-market consumers remains good, but there is a clear divergence in consumer strata.

Through the upgrade of fast delivery services and the expansion of the third-party seller market into categories (especially the penetration into the fashion apparel market), Walmart is successfully broadening its customer base to high-income and high-net-worth groups, with high-income groups showing strong consumer confidence in multiple categories; while low-income groups are clearly more budget-conscious, dealing with financial pressures and combating inflation through a more implicit "penny-pinching" approach.

Shadows in Prosperity: Gasoline Broken $4 and Supply Chain Under New Pressure

Although Walmart has shown strong immunity in the weak consumption cycle, multiple macro-level headwinds are bringing great hidden worries to the retail industry. In May of this year, the U.S. consumer confidence index has fallen to a historical low, and inflation has seen the largest increase in three years.

Currently, the retail price of gasoline in the United States has soared to over $4 per gallon. Rainey revealed that the high cost of fuel has directly put pressure on its operating profit margins by about 250 basis points. Walmart absorbed almost "100%" of this increased cost in its distribution and fulfillment networks in this quarter, without directly passing it on to consumers. In order to fulfill its commitment to "everyday low prices", the number of discounted items in Walmart increased by 20% year-over-year this quarter.

The war in Iran that broke out at the end of February further increased the supply chain costs of packaging materials such as resin, adding to the troubles of the U.S. supply chain system which had just experienced the "expansive and capricious import tariff impacts" under the Trump administration last year.

Rainey pointed out that it is very difficult to deal with such drastic cost headwinds in a very short