Grocery Gives Another Boost to Walmart Amid Higher Costs in Q1

Walmart posted better-than-expected U.S. comp-store sales growth of 3% for the company's first quarter of fiscal 2023, but higher costs weighed on margins, the retailer reported May 17.

Comp sales growth for U.S. stores came in well ahead of analyst estimates of approximately 1.8% and ahead of Walmart's own previous estimate in February of 1% to 2% for the quarter. That growth was fueled in part by continued share gains in grocery, according to the company, with grocery sales growth in the high single digits on a two-year stack. Pet categories were a particularly strong performer in part because of inflation trends, the company reported.

Chicago-based market researcher IRI reported in April that more consumers this spring said they are shopping more grocery retailers—reversing the pandemic-driven trend toward trip consolidation—on the hunt for the best prices amid still-rising grocery inflation, which hit 10.8% in April.

See also: Walmart's McMillon Concerned About Further Food Inflation

E-commerce growth for Walmart was 1% year over year and 38% on a two-year stack, the company reported. The company's global advertising business, meanwhile, saw 30% year-over-year growth.

Total Walmart Inc. revenue in the quarter was $141.6 billion, and the company's consolidated gross profit rate fell 87 basis points—primarily, according to the company, because of higher supply-chain costs and inflation-related pressures on margin mix. Higher wage costs for Walmart U.S. also contributed to an increase in consolidated operating expenses as a percentage of net sales, the company reported.

Walmart President and CEO Doug McMillon said top-line results for the quarter were strong but described bottom-line costs as "unexpected" and reflecting the "unusual environment" of the moment. "We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future," McMillon said in a statement.

Walmart also updated its full-year fiscal 2023 guidance, notably lowering its estimates for full-year EPS. In February, the company had forecast an increase in EPS in the mid-single digits for the full year. On May 17, Walmart revised that to a decrease of about 1%. 

The company is forecasting full-year comp sales growth of about 3.5% (excluding fuel), slightly higher than its estimate in February of approximately 3%. Comp sales growth for the second fiscal quarter is projected to come in at 4% to 5%.