Earnings

What Walmart’s Earnings Are Teaching The World About The New American Consumer

When the going gets tough, the tough go to Walmart. That’s one of the main takeaways to come out of Walmart’s first-quarter earnings release Tuesday (May 19).

While businesses nationwide have seen their doors close and revenues drop to near zero, Walmart reported that its sales surged as consumers flocked to its stores and website to stock up for an extended period of social distancing.

The results reversed a trend from last quarter, where the chain was one of many physical retailers facing a tepid holiday season  that missed analyst expectations for sales, comparable-sales growth and earnings across the board. “Walmart’s holiday season … wasn’t as good as expected, due to lower sales volume and some pressure related to associate scheduling,” CFO Brett Biggs said at the time.

But things have reversed dramatically for the retailer amid the COVID-19 pandemic. Walmart reported that first-quarter revenue grew 8.6 percent to $134.6 billion, up from $123.9 billion a year earlier and roundly exceeding Wall Street’s expectations for $132.8 billion. Net income totaled $3.99 billion, up 3.9 percent from $3.84 billion a year earlier.

However, Walmart’s results are arguably about more than just Walmart alone. Areas where the company showed strength and invested the most energy to change offer clue as to how U.S. consumers are changing habits in response to the pandemic. Four key things the results showed:

Consumers Are Going Decidedly Digital, And Favoring Omnichannel 

That consumers have shifted much of shopping to online has been the pandemic’s ongoing narrative. According to PYMNTS' most recent consumer survey, some four in 10 Americans have moved much of their physical routines online over the past eight weeks.

That’s been most pronounced in online shopping. About a third of consumers we surveyed (32.8 percent) said they’re shopping for retail goods just as often as they did pre-pandemic but are doing so online. By contrast, only 16.1 percent said they’ve gone online more often than before to order from restaurants.

Walmart’s first-quarter results captured this great consumer rush to digital. The company’s online sales grew 74 percent, well above the 37 percent year-on-year growth logged in 2019’s first quarter.

But Walmart’s store in-traffic also saw larger-than-expected life. Same-store sales expanded 10 percent year on year, well ahead of both the 7.2 percent forecast and the 1.9 percent that Walmart reported for 2019’s fourth quarter.

Still, the online explosion was much larger and that much more notable — and largely driven by strong results from “grocery pickup and delivery services and marketplace,” according to an earnings statement released by Walmart.

A Need For Delivery Speed (And The Power Of A Massive Store Network)

As consumers went from “digital-first” to “digital-only” overnight, shipping delays became the friction du jour for many retailers, stretching out over weeks. Even eCommerce giant Amazon had to switch its priority to shipping essential household and medical items amid delivery delays.

Juozas Kaziukenas, founder of the research firm Marketplace Pulse, told the Los Angeles Times that the entire U.S. supply chain has been “pushed to the limit,” and all goods are moving slower.

But Walmart managed to find a workaround that helped avoid delays thanks to a store network that puts one of its locations within 15 minutes of 90 percent of all Americans. The chain said it temporarily expanded ship-from-store options for orders placed on Walmart.com to include approximately 2,500 physical stores.

That means that while Amazon and other eCommerce players were forcing customers to wait weeks, Walmart was more or less able to honor delivery windows measured in days by leveraging its store network.

Safety First 

Although Walmart’s sales surged during the quarter, it also logged dramatically increased costs in providing for safety, which PYMNTS surveys indicate remains a leading consumer concern. Our polling has consistently shown a growing proportion of Americans say their main worries involve becoming ill or dying from COVID-19, or possibly infecting someone they care about.

In response to such fears, Walmart reported restructuring its hours to enable such things as special hours for senior citizens and frontline workers and enhanced time for cleaning and sanitizing stores. The chain also increased its number of pickup and delivery slots so that fewer customers have to enter stores.

Walmart also highlighted the launch of 139 COVID-19 testing sites so far in store parking lots, with an additional 44 planned to be up and running by May 31.

Navigating Uncertainty 

No one knows what’s going to happen next, which explains the deeply divided feelings among consumers we surveyed. Many have told us that they genuinely miss eating in restaurants and shopping in stores, but said that isn’t enough to motivate them back into the world.

Perhaps that’s why Walmart has withdrawn its guidance for the balance of 2020 despite Tuesday’s strong earnings report.

“The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including the duration and intensity of the COVID-19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence,” CFO Biggs said.

Still, he added, “Our business fundamentals are strong and our financial position is excellent. Customers trust us to deliver on our brand promise and I’m confident in our ability to perform well in most any environment. While the short-term environment will be challenging, we’re positioned well for long-term success in an increasingly omni world.”

That’s an increasingly omni-world that Walmart is dedicated to building more and more capacity to serve.

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