San Francisco Frontiers - Walmart reports solid results but sees some consumers struggling

The company pointed to strong growth in e-commerce following hefty technology investments, but cautioned that an even more prolonged shutdown of the Strait of Hormuz due to the Middle East war could send retail prices higher.

"I think it's possible that if fuel prices persist at this level, you may see some upward pressure on average retail prices," Chief Financial Officer John David Rainey said on a conference call with analysts.

Net income for the first quarter ending April 30 came in at $5.3 billion, up 18.8 percent from the year-ago period. Revenues rose 7.3 percent to $177.8 billion.

The closely watched level of comparable sales growth at US stores was 4.1 percent.

Walmart notched growth across consumer cohorts but again cited particular gains among upper-income households. The retail giant also pointed to higher revenues from advertising and membership fees.

On the downside, Walmart flagged higher costs from fuel and employee health care as elements that pinched profit margins

Rainey described a bifurcated US shopper, where "the high income customer is spending with confidence into many categories while the lower income consumer is more budget conscious and perhaps navigating financial distress."

As an indication of stress, Rainey told analysts on a conference call that the average number of gallons customers buy at gasoline stations fell below 10 for the first time since 2022.

Rainey called the sharply reduced activity in the Strait of Hormuz could lift food prices in addition to gasoline costs, because of the importance of the waterway to fertilizer deliveries.

- Speedy deliveries -

But executives touted investments such as drone deliveries and increased automation at warehouses as components that are boosting its capacity to satisfy shoppers. The company's infrastructure means it can reach 60 percent of US households within 30 minutes.

"While there are certainly pressures on the consumer, let me reiterate our business is strong," Rainey said.

At Walmart US, which accounts for about two-thirds of revenues, the big-box chain scored a 26 percent increase in e-commerce sales, while pointing to higher levels of "expedited" deliveries of under three hours to consumers.

Walmart achieved its highest level of gains in five years in "General Merchandise," a category that includes apparel and electronics.

Walmart confirmed its full-year financial forecast of leading earnings including, including net sales growth between 3.5 percent and 4.5 percent for the full year.

Neil Saunders, managing director of GlobalData, said the maintained forecast was a likely factor as to why Walmart shares fell Thursday.

"We take a slightly different view," Saunders said in a note. "Despite a serious deterioration of consumer finances -- largely because of gas prices and inflation, to which Walmart's core customer is very sensitive -- Walmart has retained guidance for the full fiscal year."

Walmart's sales outlook still represents a "healthy rate of expansion," Saunders said, adding that achieving such sales growth "would be another impressive advance."

Shares fell about seven percent in early trading.

G.Miller--SFF