Walmart reports major gains in Q1
The first fiscal quarter of the year was more than kind to Walmart, which kicked off its earnings call with a reported $177.8 billion in total revenue—a 7.3% increase year over year. The retail giant reported e-commerce growth of 26% globally, its ninth consecutive quarter of 20%-plus gains in the U.S., with advertising and membership revenue continuing a steady climb.
Walmart U.S. comparable sales rose 4.4%, and transaction growth in the segment was the strongest the company had seen in six quarters. Sam’s Club U.S. comps rose 3.9%, excluding fuel, while transactions saw a 6.2% boost. Internationally, net sales grew 18% on a reported basis.
“Our results reflect our continued focus on delivering across the enterprise – better shopping experience, a broader assortment and faster delivery,” said CEO John Furner. “Our teams are adopting innovative technologies, driving productivity through automation and growing higher-margin commerce solutions.”
Operating income for the first quarter rose 5% to $7.5 billion, eating around $175 million in unanticipated fuel costs across Walmart’s global distribution and fulfillment network. This translates to a 250-point headwind. CFO John David Rainey said during this week’s earnings call that the company chose to keep investing in price, inventory and customer experience despite these pressures.
“We continue to play offense despite the short-term pressure on profits. We’re confident this was the right approach to reinforce customer trust and support share gains over the long term,” Rainey said. He also noted that, if elevated fuel costs persist, shoppers should expect “somewhat higher retail price inflation in Q2 and the second half of the year.”
The company reiterated its full-year guidance on constant currency net sales growth of 3.5% to 4.5% and adjusted operating income growth of 6% to 8%, with full-year adjusted EPS projected between $2.75 and $2.85.
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Global advertising grew 37% in Q1, and global membership revenue rose 17.4%. Advertising growth reached 36% overall and 44% when excluding VIZIO, with marketplace sellers behind a 50% increase in their ad spend.
Walmart U.S. Marketplace net sales also grew nearly 50% in the quarter, hitting its fastest growth spurt in nearly two and a half years. Units shipped the same day or the next day through Walmart Fulfillment Services saw a meteoric 150% rise.
“When you take categories like membership and advertising, those two combined comprise roughly a third of our earnings today. That’s very different from the Walmart of 10 years ago,” said Rainey. “And with that more subscription-based revenue stream that we have, it actually insulates us from some of the whims in the economy.”
More than 36% of U.S. store-fulfilled delivery orders arrived in under three hours in Q1, an improvement of over 800 basis points over the past two years. Sam’s Club U.S. club-fulfilled delivery shot up over 90%, with e-commerce now responsible for 20% of its net sales.
“Fast fuels frequency,” Rainey said. “When we see that we are able to deliver to customers in the timeframes that they expect, we see much greater engagement with our customers.”
Internationally, FlipKart in India now operates more than 800 micro-fulfillment centers and averages delivery in under 13 minutes over a 30-city footprint. In China, Walmart delivered over 500 million units in Q1, with approximately 75% of them arriving in under an hour. Across its entire enterprise, Walmart delivered more than 3.5 million units the same or next day globally.
According to Walmart, supply chain automation is the culprit behind the acceleration. About half of its e-commerce fulfillment center volume in the U.S. is now automated, and more than 60% of stores receive freight from automated distribution centers. More than half of the company’s regional distribution centers are undergoing some manner of retrofit.
Walmart’s AI shopping agent, Sparky, was also the subject of some attention during the call, with weekly users more than doubling in Q1 alone. The retail giant said investments in the system have improved Sparky’s intelligence and response quality by 40% this year. Sparky now works in-store and supports automatic reordering for repeat purchases.
Q1 was also the first quarter in 18 to report a positive contribution to Walmart U.S.’ gross margin expansion from the merchandise category, a 29-point increase. General merchandise comps were positive, with the company posting its highest level of GM share gains in five years. Fashion was a global standout, tailed by categories like patio and garden, sporting goods, furniture and toys. The beauty category was also a notable performer this quarter, bolstered by its assortment and investments in the in-store experience.
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Walmart is also actively making moves to spread its commerce platform model beyond the U.S. The company recently launched Marketplace Cross Border into Canada and Mexico and reports encouraging early results on those fronts.
“We have built a number of capabilities in a variety of markets,” Furner said. “We’re excited about the ability of those platforms to transfer into markets around North America.”
On tariffs, Rainey confirmed that Walmart is pursuing available refunds through the IEEPA process but also stated that any potential refunds represent less than a half of a percent of U.S. annual sales. Full-year guidance had no assumption of tariff refund income, and any recovered funds would be directed toward price investment, the company said.
For Q2, Walmart expects net sales to grow 4% to 5% in constant currency and adjusted operating income to grow 7% to 10%, with adjusted EPS between $0.72 and $0.74.
This article was first published on Canadian Grocer's sister site, Progressive Grocer.
