Walmart (NYSE: WMT) was one of the beneficiaries of the coronavirus crisis as both in-store and e-commerce sales were better than expected. Online sales were 74% higher than the first quarter of 2019, and in-store sales were 10% higher. The company also hired 200,000 workers in the quarter to meet this increased demand and also because it stepped up cleaning protocols.
Walmart's stock gapped up to test its all-time high. There was some profit-taking as the stock withdrew guidance for the rest of the year given "unprecedented variability" due to the coronavirus pandemic. The stock currently sits 4% below its highs. Walmart's stock is up nearly 10% for the year, while the S&P 500 (NYSE: SPY) is 10% lower.
Recent weeks have been dominated by optimism that the economy will "reopen", so there's been a rotation out of companies that benefit from stay-at-home orders and into companies that have been the most punished under these conditions.
Inside the Numbers
Walmart noted that people made fewer trips but were purchasing more items. The number of transactions was 6% lower, but the average transaction size was 16% higher. These figures were largely due to stockpiling during the initial part of the pandemic. Consumers were buying more lower-margin items like food and toilet paper. But in later months, demand picked up for big-ticket items with some of this attributed to the stimulus payments.
Net income was $1.40 per share for the quarter which was above last year's first quarter of $1.33 per share and analysts' estimates of $1.12 per share. Revenue was $134.62 billion, 8.6% above last year, and Wall Street expectations of $132 billion.
Silver Lining
Walmart's profit growth was 5%, but its revenue grew by nearly 10%. The difference was due to customers buying more low-margin items and eschewing higher-margin, expensive products. Walmart CEO Doug McMillon said there were three phases. Phase 1 was stockpiling with "unprecedented demand" for cleaning supplies and groceries. Phase 2 was shopping for items that enabled work and schooling from home.
Phase 3 is ongoing and the CEO speculated that it was driven by stimulus checks and there was a resumption of buying more expensive items like TVs, furniture, and toys. This is one piece of evidence that the government's fiscal stimulus program is working, and people are feeling confident enough to spend the proceeds on discretionary items.