Walmart seen seeing steady rise in margins, revenue

NEW YORK, NY - Walmart Inc is expected to see a steady rise in gross margins and revenue when it reports first-quarter results on Tuesday, as price conscious shoppers feel the strain of persistent inflation and increase visits to the low-cost retailer.

Walmart has averaged a 4.9% increase in monthly visits since the start of 2022, compared to the same period in 2021, Placer.ai data showed. Despite the supply chain challenges and pricier fuel, shoppers have been able to make fewer grocery store trips.

Analysts have been positive about Walmart's ability to diversify its revenue base through advertising and to keep prices low when compared to rivals that are struggling.

In an inflationary environment, the pricing at Walmart is still lowest, and they've done a good job of keeping prices low to maintain and widen the price gaps with the competition, and providing the best value for the consumer, even in an inflationary environment, said Joseph Feldman, Telsey Advisory Group analyst.

In a note on Monday, Guggenheim analysts said Walmart is a top pick during inflationary times.

We believe Walmart will deliver impressive top and bottom line performance despite the changing pandemic environment, regardless of tougher consumer spending patterns. The investors are already piling in. Walmart's stock is up about 2% on the year to Friday, as opposed to the S&P 500's nearly 16% decline.

In April, grocery prices went up 10.8%, the largest year-over-year jump since 1980, while the cost of gas fell 6.1% but was still up nearly 44% from a year ago.

In March, Walmart Chief Financial Officer Brett Biggs said consumers were keeping their eyes on inflation and that rising fuel prices would cause consolidation in shopping trips.

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You're going to see fewer trips. Biggs said at the Bank of America Conference that bigger baskets is our sweet spot and that's why you'll tend to see bigger baskets.

Refinitiv estimates that the Bentonville, Arkansas-based retailer will earn gross margins of 24.55% in the quarter, up from 24.43% in the previous quarter, with revenue rising 0.4% to $138.883 billion. Earnings per share are estimated to be $1.48, down from $1.69 last year.

Gordon Haskett analyst Chuck Grom said that Walmart is benefitting from increasing trip consolidation, a healthy price gap to national chains, and accelerating inflation trends.

The company is looking at growing its $12.99 a month Walmart Plus membership to challenge Amazon's Prime, priced at $14.99 monthly. Walmart Plus, which launched in September 2020, offers delivery services and gas discounts, but is still struggling to make ground against Amazon.

A report by eMarketer citing Bizrate shows that only 15% of U.S. adults use Walmart's Plus service, compared to 62% for Amazon's Prime.