Show resilience in the midst of challenges! Walmart's performance rebounded strongly, how should investors consider it?

Walmart's latest quarterly results showed strong resilience and the international division performed better than expected.

The company saw an increase in sales and profit margins during the quarter, as well as strong growth in its advertising and e-commerce business.

Walmart's Indian e-commerce platform Flipkart is showing strong growth and plans to enter the fast commerce sector, which is also supported by Google's recent investment.

Compared with the same period last year, Walmart's stock price rose by about 33.3%, which greatly exceeded the 25.5% increase in the S&P 500 index during the same period, which attracted attention. In this article, I discussed the company's latest quarterly results. Although the company's valuation advantage needs to be improved, its resilience in a challenging macro environment and its international division's performance exceeding expectations made it more attractive than before, and will gradually unlock development potential in the future. If investors have confidence in the positive signals currently being released and want to invest and trade, here is a reference, you can choose BiyaPay to search for the WMT stock code on the platform and trade online in real-time; of course, if you have problems with deposits and withdrawals, you can also use the platform as a professional deposit and withdrawal tool for US and Hong Kong stocks, withdraw to a bank account, and then deposit to other brokerage firms to buy this growing stock. Compared with other platforms, the payment speed is fast and there is no limit.

All in all, I think Walmart has performed very well this quarter. First-quarter revenue was $159.9 billion, up 5.92% year over year, higher than analysts' expectations of $1.67 billion. Adjusted earnings per share of $0.60 were still above analysts' expectations by $0.07, although down 59% year over year. Adjusted revenue increased 13.7% year over year due to higher gross margin and a significant increase in membership revenue. The advertising business and e-commerce business both performed strongly, with year-on-year increases of 24% and 21%, respectively. The company also demonstrated its ability to manage inventory in a strict manner. Global inventory was reduced by 2.7%, with Walmart America's inventory falling 4.2% year over year.

The guidance provided by management was strong and prudent. In the second quarter, consolidated net sales will increase by 3.5% to 4.5%. Consolidated operating income is expected to grow 3% to 4.5%, and adjusted earnings per share are expected to be between $0.62 and $0.65. All three indicators are expected to reach or slightly higher than the high end of the company's previous guidance throughout the year. Management had previously predicted a 3% to 4% increase in consolidated net sales for FY25, a 4% to 6% increase in consolidated adjusted operating income, and adjusted earnings per share between $2.23 and $2.37.

A key highlight of Walmart's first quarter was that in the face of a challenging macro environment, the company showed strong resilience and successfully attracted higher-income consumers through a series of efforts. Over the past year, American consumers' pessimism about the economy has intensified, as can be seen from the latest consumer confidence report. Despite this, Walmart was able to achieve strong sales and profits, due to the company's continued ability to attract higher-paying consumers. Management pointed out during the earnings call that the higher level of convenience provided by the company is attracting more high-income households to shop with the company.

Walmart's distribution business is mainly focused on high-income households, and the business has experienced strong growth due to the company's focus on shortening delivery times without sacrificing product quality. For example, in the company's US division, 20% of the 4.4 billion items delivered same day or next day in the past 12 months were delivered within three hours. The management also emphasized during the earnings call that delivery times are getting faster and delivery costs are falling, which in turn enhances convenience for shoppers.

In addition to this, the strong growth in Walmart membership revenue is further proof of the company's resilience. For example, Sam's Club in the US reached new highs in both membership numbers and member penetration, and member revenue increased 13%. Sam's membership in China also increased 25% year over year. Finally, Walmart's Walmart+, the equivalent of Amazon Prime, has once again achieved double-digit growth and is currently at an all-time high. Considering that members often shop and spend more than non-members, as long as the company can maintain this growth, it should help the company continue to increase sales and profit margins over the next few quarters. Other areas, such as membership programs and advertising, can also help increase the company's revenue.

I'm particularly impressed with Walmart+, and I believe this will enable the company to continue to provide a “convenient” shopping experience. Features such as AI-powered Mobile Scan & Go, which is currently used by one-third of members, as well as features such as returns from home and early access to offers, are all catalysts for more consumers to shop at the company. Previously, there were concerns that Walmart might fall victim to the current retail environment, but thanks to e-commerce improvements, improved product quality, and attractive membership program features, the company has successfully weathered these rough waters, as evidenced by its higher-than-expected quarterly results.

Another important gain of the quarter was strong growth in Walmart's international business, which saw strong double-digit growth in both sales and profits. This growth was mainly driven by Walmart, China, and Flipkart, an Indian e-commerce platform acquired by Walmart.

I want to pay particular attention to Flipkart because I think there are a lot of positives here. The company's same-day delivery orders now cover 20 major cities in India and have increased by more than 150% this quarter, indicating strong potential demand. Flipkart also achieved positive EBITDA during the quarter, leading to two consecutive quarters of positive EBITDA growth. Additionally, Flipkart and Walmex (Walmart's Mexican and Central American division) were the main drivers of the company's surge in international advertising business, which grew 27% year over year during the quarter.

Flipkart is currently planning to enter the fast commerce sector as early as July, which involves two to four-hour deliveries, and importantly, demand is strong. Previously, the company had negotiated the acquisition of Zepto, one of the leading fast commerce companies, in order to accelerate its entry into the field, but the negotiations were unsuccessful. Nonetheless, given the current increase in demand, I believe Flipkart can succeed alone in this area, which Goldman Sachs says is expected to reach a total order value of nearly $5 billion in fiscal year 2024.

The fact that Google announced earlier this week that it would invest $3.5 billion in Flipkart as part of its $10 billion funding further strengthened my confidence that Flipkart could succeed. The investment will help Flipkart utilize Google's cloud services and further enhance its digital infrastructure by integrating artificial intelligence.

According to Statista data, revenue from the Indian e-commerce market is expected to grow to US$101.4 billion by 2029, at a CAGR of 11.45%. Thanks to Google's investment and the company's plans to enter the fast commerce market, the company's growth prospects will be further clarified.

The company expects adjusted earnings per share for fiscal year 2025 to meet or slightly exceed the upper limit of the previous guidance range of $2.23 to $2.37. Given that adjusted earnings per share for the first quarter were well above the previous guidance range of $0.49 to $0.52, and that the performance of different sectors and groups has remained strong so far despite economic uncertainty, I assume adjusted earnings per share for FY2025 of $2.37, which is the upper limit of the company's guidance.

According to data from LSEG Workspace (formerly Refinitiv), the company's current expected price-earnings ratio is 26 times, which is cheaper than Costco's expected price-earnings ratio (47 times), but more expensive than Target's expected price-earnings ratio (15.1 times). The current price of the stock is also high compared to its historical expected price-earnings ratio of 23.1 times. If the company's adjusted earnings per share were to reach $2.37, this would mean a 24 percent year-over-year increase in earnings, almost three times analysts' average expectations for the company's long-term earnings growth of 8.1 percent. With this growth in mind, I assumed an expected price-earnings ratio of 26 times in my calculations rather than its historical price-earnings ratio.

According to Seeking Alpha, Walmart's expected PEG ratio is 3.49, slightly below its 5-year average of 3.75, but well above the industry median of 2.32. While I don't think Walmart will continue to achieve 24% profit growth in FY26, I believe it will far exceed 7.5% profit growth, and if we assume a PEG ratio of 3.49, we'll get that figure. On the other hand, assuming the industry's median PEG ratio of 2.32, the revenue growth rate is 11.2%, which seems to me a more reasonable estimate because I believe the company's ability to attract high-income consumers and its rapidly growing advertising business should offset the challenging macro environment. Therefore, I'm assuming a forward-looking PEG ratio of 2.32, followed by an earnings growth rate of 11.2%. At this rate of earnings growth, earnings for FY26 are expected to reach $2.64.

The 26x forward-looking price-earnings ratio and $2.64 earnings per share will generate a target price of $69, which indicates that there is potential room for growth at current levels.

Although consumer confidence broke the trend of three consecutive months of decline in May, consumer confidence continued to decline as American consumers remained concerned about continued inflation. According to the University of Michigan consumer confidence survey in May, the consumer confidence index fell 12.7% month-on-month, and the one-year inflation forecast jumped to 3.5%, the highest level since November 2023, which poses certain challenges to Walmart's future development.

Furthermore, although the company's plan to acquire Vizio should provide the company with a better platform to compete with Amazon and other companies in the advertising field to further enhance competitiveness, the acquisition has not yet been fully completed. Moreover, the Federal Trade Commission has begun an antitrust investigation. Although the company expects the deal to be completed in fiscal year 2025, the scope of the FTC's investigation may disrupt the company's plans, which is a factor investors should consider.

Walmart is off to a good start to the year, and its focus on convenience has enabled it to attract different categories of consumers, which translates into more revenue and profits than expected. The resilience the company has shown is mainly due to its ability to continue to meet the needs of high-income families through efficient delivery and attractive features offered by its Walmart+ membership program.

Furthermore, the company's international business also showed strong growth, mainly driven by Flipkart in India. The Indian subsidiary continues to break expectations. Google's investment should enable it to better compete with local competitors such as Reliance Industries and Amazon. Coupled with the company's resilience in a challenging context, it is worth considering as an investment.