Walmart's stock rose as much as 7.3% to a record high of $64.22 in early trading. The stock's surge has boosted its valuation past 25 times expected earnings, up from a 10-year average valuation of about 20, according to LSEG data.
This strong performance by the largest U.S. retailer could assuage some investors' fears about ebbing U.S. consumer spending. Joseph Feldman, an analyst with Telsey Advisory who has been covering Walmart for years, said "it's about as good a quarter as I can remember."
Walmart reported total U.S. comparable sales up 3.9%, excluding fuel, for its first quarter ended April 30. Average transactions - a proxy for online and store traffic - also rose by a similar amount while shoppers also put in more items in their carts, Walmart said on Thursday. Analysts expected those sales to rise 3.15%, according to LSEG.
During a post-earnings call, Walmart's finance chief John David Rainey noted that inflation on its product range increased by about 0.4% in the quarter and anticipates similar inflation levels to persist throughout the rest of the year.
"We feel really bullish when you think about apparel, jewelry, home hardlines, auto, consumer, electronics. We're seeing really strong unit growth there," executives said on the call.
Online sales in the United States surged 22%, surpassing the 17% growth it posted during the typically robust holiday season. Growth was driven by its pickup & delivery services and increased sales through its third-party marketplace, which now offers more than 420 million items of mostly discretionary products. Walmart attributed much of the online gains to households earning more than $100,000 per year.
"It was nice to see that sales increased because of volumes and not just prices. The dispiriting aspect is that wealthier consumers are continuing to do the heavy lifting," said Brian Jacobsen, chief economist at Annex Wealth Management, which holds Walmart in mutual funds and ETFs it manages.
While Americans have generally managed to navigate through higher prices, prolonged inflation has sparked worries that lower-income consumers might be more pressured and potentially slow down an anticipated recovery in spending.
Lower-income consumers maintained their spending levels during the quarter, but are increasingly looking for cheaper products, Walmart said. Walmart said shoppers were increasingly making food at home rather than eating out and were really attracted to the 45% increase in rollbacks - or price cuts - that it offered on food and consumables in April.
Telsey analyst Feldman said Walmart's strong results could bode poorly for the rest of retail as its performance indicates it is taking market share. Target (TGT.N) reports results on May 22.
Walmart reported first-quarter adjusted earnings of 60 cents per share, easily beating the 52-cent average forecast. Total revenue of $161.51 billion also topped estimates.
The retail bellwether now expects annual consolidated net sales to rise at the high end or slightly above its prior forecast of 3% to 4% growth, and adjusted profit per share to be at the high end or slightly above its prior estimate of $2.23 to $2.37.
