Walmart Outlook Brightens on Favorable Q1 Performance

As part of its better-than-expected first-quarter earnings, Wal-Mart Stores Inc. posted a 1 percent same-store sales gain, which marks the seventh straight quarter that the world's largest retailer's all-important retail progress barometer has pointed north.

During the first quarter ended April 29, store visits also rose 1.5 percent, which company officials suggest are tied to its $2.7 billion investment in employee wages and training, which are not only producing better in-store conditions, but also enabling company associates to return the favor by spending more money in their employers' stores.

Walmart Q1 Highlights

• The Bentonville, Ark.-based retailer's Neighborhood Market performance is also on the upswing, with a comp-sales increase of approximately 7.1 percent, alongside improved customer experience scores.
• Total revenue was $115.9 billion.  On a constant-currency basis1, total revenue was $119.4 billion, an increase of 4 percent.
• Net sales at Walmart International reached $28.1 billion.  Excluding currency1, net sales were $31.6 billion, an increase of 4.3 percent, and operating income increased 22 percent.
• Operating cash flow was $6.2 billion and free cash flow was $4 billion, both higher than last year due to a solid operating performance and improved working capital management.
• Consolidated operating income declined 7 percent, as planned investments in people and technology, as well as currency exchange-rate fluctuations, affected results. Excluding currency1, operating income decreased by 4.6 percent.

Fundamental Improvements

During a call with investors, Wal-Mart President/CEO Doug McMillon said: "We're encouraged by the Walmart U.S. comps and believe it is attributable to real improvement in our store experience. Our customers are giving us positive feedback, and I'm seeing it myself on store visits … and [in] traffic numbers. It is exciting to see the improvement in core retail fundamentals," continued McMillon, noting better inventory management that not only benefits cash flow, but also better facilitates "a virtuous loop. When [these improvements are] combined with our investments in training and associate education, wages and store structure," associates are able to spend more time on the sales floor serving customers, which is, in turn, boosting customer satisfaction scores.

McMillon gave props to the company's associates, Walmart U.S President/CEO Greg Foran, and the entire U.S. leadership team, who collectively "did a better job of managing costs … and more closely aligning expenses with sales growth. Better expense management in the quarter," he continued, "gave us increased confidence to initiate our next phase of U.S. price investment earlier than planned. Over time, we intend to lower prices further in a deliberate, strategic way to drive our productivity loop."

e-Commerce Challenges/Opportunities

While Walmart is making progress with its e-commerce platform, McMillon said much work remains  to seize its full potential and catch up with Amazon's steadily gaining clout in the e-grocery space. "Our marketplace is ramping up, but it takes time to build the assortment to the point where customers realize the depth of assortment. We now offer more than 10 million SKUs on Walmart.com, and we're growing that number through a combination of first-party and third-party items. It makes sense that perception will trail reality, and we will work on both during the course of this year," he affirmed on the call with investors.

"We're pleased with our e-commerce operating system and happy to have our new e-commerce fulfillment centers operational," he added, describing the facilities as "necessary building blocks. I'm excited about the ways we're using technology to deepen our relationship with customers and help them save both money and time."

An emerging bright spot is Walmart's grocery pickup service, which McMillon said "continues to receive high marks from customers." Accordingly, the retailer is expanding it to nine new markets, which will bring its total number of click- and-pick markets to nearly 40 by the end of this month. "In addition, in some markets, we will double the number of stores that offer the service locally in May," said McMillon. "We expect to continue to quickly expand to new markets."

On the digital front, he noted that Walmart's mobile app "is also allowing us to serve customers in convenient ways, whether it is by finding an item in store, researching a product or refilling a prescription. Walmart Pay is enhancing our ability to provide a seamless shopping experience as customers quickly pay with their phone. A few weeks ago, we began to expand this service nationwide, and we're on schedule to complete the rollout by the end of June."

During the investors' call, Brett Biggs, Walmart's EVP/CFO, said, "We're pleased with the ways we're using technology to deepen our relationships with customers and helping them save both money and time," particularly noting the expanding grocery pickup service,.

"We are proud of the overall results in the first quarter, and there is momentum in many parts of the business," Biggs added.