Walmart’s (WMT - Free Report) e-commerce expansion paid off in a big way during the first quarter, as the coronavirus forced people to stay at home. The retailer’s strong Q1 showing highlighted why it might not only be a strong play during the coronavirus, but for years to come even as Amazon (AMZN - Free Report) crowds out smaller retailers.
E-Commerce & the Pandemic
Walmart, like its peers Target (TGT - Free Report) and Costco (COST - Free Report) , has rolled out more delivery and pick up options, alongside a beefed-up overall digital business in recent years, spurred on by the Seattle titan’s success. These initiatives helped WMT’s U.S. e-commerce sales jump 37% last year, which came on top of fiscal 2019’s 40% e-commerce revenue growth.
Clearly, this all occurred before the coronavirus forced large swaths of the economy to stop and ‘non-essential’ businesses to close. With this in mind, Walmart saw its U.S. Q1 e-commerce sales skyrocket 74%. This helped drive 10% comps growth and an 8.6% jump in overall quarterly revenue—its largest climb in over a decade.
And as one might assume, Walmart’s food, health and wellness, consumables, and other more essential-style categories performed well. Investors should also note that Sam’s Club comps jump 12%.
Walmart’s strong top-line growth did coincide with higher costs associated with the pandemic. Higher wages, benefits, heightened sanitation measures, and more added up to nearly $900 million in incremental costs related to the coronavirus. WMT also noted that gross margins were negatively impacted by a shift to sales in lower-margin categories.
Despite its strong showing and its ability to grow during the coronavirus, the company still pulled its guidance for fiscal 2021. Our current Zacks estimates, which could change as more analysts update their outlooks, calls for Walmart’s Q2 sales to climb 3.5%, which would fall well short of Q1’s nearly 9% growth.
Peeking further ahead, its full-year revenue is projected to jump 4.1% to $545.28 billion. On top of that, WMT’s fiscal 2021 comps are projected to climb 3.6%. Both of these would mark improvements over last year.
The bottom end of the income statement is a slightly different story, with Walmart’s adjusted second quarter earnings projected to sink 5.5% from the year-ago period to $1.20 a share. The retailer’s adjusted full-year FY21 EPS figure is projected to dip 1.2% to $4.87 a share.
Wall Street likely didn’t fawn over WMT’s Q1 results because of the rising costs. But the company’s ability to expand its top-line and prove its e-commerce strength might turn out to be plenty enticing at a time when the broader S&P 500 is projected to see its earnings tumble 42.6% in Q2 and over 23% in 2020 (also read: Covid-19 Impact on Earnings to Linger Through 2021).
Along with not jumping following its strong Q1 results, Walmart stock has fallen well behind its industry and the S&P 500 since the market’s March 23 lows—up 9% vs. the S&P’s 32%. However, Walmart didn’t have as much room to climb since it didn’t really selloff with the rest of the market, as it was seen as a safe-haven early on. Walmart shares are up over 5% in 2020, against its industry’s 5% decline.
Walmart stock currently rests about 6% below its 52-week highs and trades at a solid discount against its industry. Last quarter, the firm upped its dividend by 2% and its yield comes in at 1.73% right now, to crush Costco’s 0.92%.
WMT is currently a Zacks Rank #3 (Hold) that sports an “A” grade for Growth and “B” for Momentum in our Style Scores system. And investors looking to add a safe, dividend-paying stock that is poised to grow for years to come—even in the worst of times—might want to consider Walmart.
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