3 quotes to read from Walmart’s management team
Walmart (NYSE: WMT) announced mostly good news in its mid-May earnings report. As growth slows from last year’s surge, the retailer has capitalized on a few favorable trends, which should keep sales on the rise after last year’s record surge.
Management continues to anticipate an extended period of increased capital spending that threatens to put pressure on cash flow over the next several years. But it’s more bullish for the remainder of this fiscal year, and for Walmart’s long-term growth prospects after a strong start to 2021.
Let’s take a look at a few takeaways CEO Doug McMillon and his team had for investors during Walmart’s last conference call with Wall Street analysts.
1. The consumer always wants to buy
“The economic recovery is clearly having an impact, but we are also seeing encouraging signs that our customers want to go out and shop. “–McMillon
Walmart’s growth slowed as the impact of the pandemic diminished, especially in the US market. Comparable store sales gains reached 6%, up from 9% through 2020.
Yet the first quarter was characterized by wins in several important areas, including improved in-store traffic, continued growth in online demand and increased market share in the grocery niche. Walmart has also been successful in keeping its supply chain buzzing despite inventory pressures and global shipping issues. The best news, according to the team, is that everything indicates that the surge in demand will last even after the end of the federal stimulus.
2. More expenses are needed
“The top of the flywheel starts out as the best place people buy. “–McMillon
Walmart expects to invest at least $ 14 billion in the company this year while keeping its capital spending high for several more years. Management detailed some of the reasons for this investment priority, which aims to keep its platform at the top of consumers’ buying choices.
A few of these initiatives include reshaping stores, adding online inventory, and speeding up delivery services. Walmart attributed these factors to increased demand for its membership service and increased overall customer satisfaction. “We need more capacity to keep ahead of demand,” McMillon said, “and we remain confident these investments are smart.”
The downside is that the expenses will put pressure on cash flow over the next several years, which will mean lower share buyback expenses.
3. We are breaking our tradition of insight
“Our typical practice is not to update our forecast until the second quarter release. But we are in an unusual time when the first quarter stimulus has resulted in significant sales and profits that weren’t envisioned when we provided a forecast in February. ” –Chief Financial Officer Brett Biggs
The good start to the year was enough to convince management to deviate from its usual pattern of waiting until the second quarter before updating the annual outlook. It now sees sales and profits grow faster in 2021, mainly thanks to the strength of the U.S. market that has been lifted by federal stimulus and the easing of social distancing requirements.
The pandemic continues to threaten business trends, especially in a few international markets like India. But Walmart expects faster growth in the current quarter than executives predicted in February.
Investors will still receive a second half forecast update following the second quarter results in August. This prospect could feature another important upgrade if consumers’ willingness to shop does not collapse before then.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.