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Walmart Gets Back to Basics as Grocery Sales Grow -- Heard on the Street

05/18/2021 | 10:10am EDT

By Jinjoo Lee

Between competition from Amazon, big-box retailer peers and traditional grocery stores, Walmart has a lot to worry about. Last quarter's results should help ward off at least one fear.

The retailer on Tuesday reported better-than-expected results for the quarter ended April 30, with comparable U.S. sales up 6% compared with the 1.5% growth analysts polled by FactSet had expected, boosted in part by stimulus payments. That growth is especially impressive given that it is being measured against the peak pandemic stockpiling period a year earlier, when comparable sales grew 10.3%. Excluding the effects of some nonrecurring items, earnings per share increased 43% from a year earlier.

The comparison with last year's frenzy was even favorable in some ways. Walmart's bottom line was flattered by a higher mix of general merchandise items compared with low-margin consumables such as toilet paper and canned goods, which flew off the shelves last year. Apparel, home goods and lawn and garden items all sold well last quarter, Walmart's Chief Financial Officer Brett Biggs said on an earnings call Tuesday morning. The bottom line was also helped by a decline in Covid-related costs.

The biggest source of relief for Walmart was that it appeared to gain back some market share in groceries. Earlier data from Numerator for the year through March 31 showed that Walmart's grocery market share in the U.S. declined to 20.1% from 22% a year prior. That marked a contrast from Kroger, Costco and Target, which all saw their grocery market share increase over the same period.

In the quarter ending April 30, Walmart said grocery sales fell by a low-single digit percentage compared with a year earlier. Supermarkets across the U.S. saw sales decline 2.4% over the same period, according to data from the U.S. Census Bureau. Walmart executives said the company is growing market share again in the U.S. compared to last year, citing Nielsen data.

Walmart might gain even more market share later this year, driven by better foot traffic and inflation. A survey conducted on May 10 by Inmar Intelligence showed that almost 90% of surveyed adults noticed an increase in prices of groceries. The survey also showed that price was the most important factor consumers considered when considering where they shopped. That price sensitivity should help Walmart, which pretty consistently has lower prices than competitors.

For now, that means Walmart has to concentrate on a few strategies, including its "everyday low prices" approach, rather than spread itself too thin. The retailer said that it will focus on building out capacity for grocery pickup and delivery for now rather than growing its Walmart+ membership program.

Walmart shares gained almost 3% Tuesday morning, which was notable given that its share price had dropped after every earnings call in the previous four consecutive quarters. Yet Walmart still trades more cheaply than peers at 0.7 times forward sales, compared with 0.9 times for Costco and 1.1 times for Target, according to FactSet.

Investors may need to see a couple more quarters of unquestionable market share gains in the grocery aisles before Walmart can close that valuation gap.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

Corrections and Amplifications

This article was corrected at 1:42 p.m. ET because it misstated that in the quarter ending April 30, Walmart said grocery sales increased by a low-single digit percentage compared with a year earlier. Grocery sales fell by a low-single digit percentage compared with a year earlier in the quarter ending April 30.

(END) Dow Jones Newswires

05-18-21 1210ET

Stocks mentioned in the article
ChangeLast1st jan.
COSTCO WHOLESALE CORPORATION -0.50% 422.22 Delayed Quote.12.06%
DJ INDUSTRIAL -0.36% 34930.93 Delayed Quote.14.83%
THE KROGER CO. 0.00% 40.03 Delayed Quote.26.04%
WALMART INC. -0.41% 142.06 Delayed Quote.-1.45%
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Financials (USD)
Sales 2022 551 B - -
Net income 2022 14 925 M - -
Net Debt 2022 32 996 M - -
P/E ratio 2022 27,3x
Yield 2022 1,57%
Capitalization 398 B 398 B -
EV / Sales 2022 0,78x
EV / Sales 2023 0,76x
Nbr of Employees 2 300 000
Free-Float 50,7%
Duration : Period :
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Income Statement Evolution
Mean consensus BUY
Number of Analysts 39
Last Close Price 142,06 $
Average target price 163,62 $
Spread / Average Target 15,2%
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C. Douglas McMillon President, Chief Executive Officer & Director
Brett M. Biggs Chief Financial Officer & Executive Vice President
Gregory B. Penner Non-Executive Chairman
Clay Johnson Enterprise Chief Information Officer & EVP
Jerry R. Geisler Chief Information Security Officer & Senior VP
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