The year 2022 brought about a major shift in the retail industry as consumers’ buying habits changed drastically due to the pandemic. Walmart, the world’s largest retailer, was not immune to this upheaval and had to adapt to the changing market conditions quickly.
The much-anticipated Q4 2023 earnings call allowed the retail giant to showcase its resilience and growth amidst these challenging times. As we listened in on the call, we were fascinated by the insights shared by Walmart’s top executives, revealing the company’s financial performance, strategy, and future plans.
Here are the six key takeaways from the Walmart Q4 2023 earnings call.
Performance
- Revenue was $164.0 billion, up 7.3%, or 7.9% in constant currency for the fourth quarter; full-year highlights total revenue was $611.3 billion, up 6.7%, negatively affected by $5.0 billion related to divestitures. Excluding currency, total revenue would have increased by 7.4% to $615.1 billion.
- Walmart U.S. comp sales grew 8.3% and 13.9% on a two-year stack for the fourth quarter. Full-Year Walmart U.S. comp sales increased 6.6% and 13.0% on a two-year stack.
- Full Year Membership income increased by 8.6%.
- Full-year, the company generated $29.1 billion in operating cash flow and returned $16.0 billion to shareholders through dividends and share repurchases. GAAP EPS of $4.27; Adjusted EPS of $6.29
- Fiscal Year 2024 full-year guidance net sales to increase 2.5% to 3.0% constant currency and operating income to increase approximately 3%
Walmart Reports Strong Finish To FY 2023
Walmart reported a strong finish for the 2023 fiscal year, with results showing that the company acted quickly and aggressively to address inventory and cost challenges faced last year. The company added $38 billion in sales globally and crossed $600 billion in revenue for the first time. The company also reported that all three segments (Walmart U.S., International, and Sam’s Club U.S.) had gained momentum, with double-digit comp growth for the third consecutive year at Sam’s Club U.S.
The company highlighted that it is a people-led, tech-powered omnichannel retailer dedicated to helping people save money and live better lives. Additionally, Walmart reported gaining share across income cohorts, including at the higher end, even with inflation. It is capturing a greater share of wallets at Sam’s Club in the U.S. by improving in categories like apparel and home. The company plans to stay focused on general merchandise to offset the mixed impact of inflation and is improving its e-commerce assortment and presentation in apparel and home.
International Markets and Consumer Behaviour
During a quarterly earnings call, management discussed the company’s strong performance in the international market. The company saw a top and bottom-line growth of approximately 9% across various markets, including Mexico, China, and India.
One of the key takeaways from management remarks is the similarity of consumer behavior across the world. Management noted a continuing rise in their digital capabilities and expectation of what consumers want from businesses. Additionally, private brands were on the rise in how consumers shop, which was true in every market in which Walmart operates.
Mexico was a particular highlight for Walmart during the quarter. The country saw its ninth consecutive year of market share growth, which management attributed to the strengths of the formats and their broad appeal across all population sectors.
In China, the opening of the country was big news for Walmart. The company saw continued strength in hypermarkets, which is Walmart’s higher-end offering within China. While people shopped back in hypermarkets again, the real consumer trend in China was the rise of e-commerce. Walmart saw 70% growth in Q4, a 163% 2-year stack for China on e-commerce growth, with penetration reaching 48%.
The buildup into the Chinese New Year undoubtedly helped this growth, but Walmart continues to see e-commerce as part of its economic behaviour. With the opening of China, Walmart has seen people returning more to stores and wanting to celebrate events, as evidenced by the Chinese New Year.
Performance of Walmart+
Management explained that consumers are more interested in paying for delivery in bulk with an annual membership rather than per delivery, which led them to develop Walmart+. The program is opening up all kinds of opportunities for the company.
Management shared that Walmart+ is an important part of what they are building. It allows customers to access an exciting combination of all their assets, from their digital front end to their inventory, within 10 miles of 90% of the population.
Management added that it’s becoming more difficult to measure the differences between e-commerce and stores because stores act as fulfillment centres, so there are a lot of blurred lines between all these channels. Additionally, management emphasizes that Walmart+, with delivery, along with other businesses like advertising, fulfillment services, and the marketplace, all add up to a better proposition for both the customer and the company.
Overall, the executives seem pleased with the performance of Walmart+ and believe that it is a key component of their evolving e-commerce strategy.
Question and Answer
Simeon Gutman with Morgan Stanley asked about the balance between investments and bottom-line growth for the upcoming year. Specifically, he asked whether any short-term factors will have an impact on the company’s performance.
Walmart’s CEO Doug McMillon responded that they feel good about their current pricing strategy and wage investments and that the income statement is in good shape overall. He also noted that the business model is changing, reflected in the mix of products being sold and the addition of advertising income. McMillon mentioned the automation opportunity as a significant investment they are excited about but notes that it is more of a capital expenditure and balance sheet investment than a way to shape the income statement.
John Rainey, the CFO, added that they expect a marginal improvement in return on investment in the upcoming year and a sharper acceleration in the following years. He noted that they need to show a return on their investments. Still, they are excited about the early results they see with some of their investments, such as automation in perishable and e-commerce distribution centres. Rainey believes that these are high-ROI investments, and they have a clear line of sight into the return. He stated that this allows them to invest appropriately in their associates and technology and see margin expansion over time.
McMillon concluded by mentioning that their sales have been stronger in the last few years, with a 6% CAGR over the last five years. He attributed this to their unusual circumstances, such as COVID costs and inflation, and hopes for a more normal situation in the upcoming year that will enable them to push through their strategy and see operating income growth.
Rupesh Parikh with Oppenheimer asked about food inflation and non-food inflation.
Walmart US CEO John Furner noted that food inflation has been the most stubborn category and that despite a slight decrease in the last few months, it remains high. Walmart’s CEO Doug McMillon added that dry grocery and consumables are the categories most affected by inflation, with stubborn mid-double-digit increases that will likely continue to be a problem for customers. On the other hand, new categories like eggs, milk, and beef are more volatile, with prices increasing. McMillon noted that while these categories may have slightly lower inflation rates, it is still a customer problem and can impact the company’s mix over the year.
Overall, Furner and McMillon stressed the importance of keeping prices low for customers and are cautiously managing inflation in their business.