Walmart (NYSE:WMT), the largest U.S. retailer (at least for now), was among the top gainers on Thursday as its stock price surged some 6%, reaching an all-time high of $64 per share. The catalysts for the big-box behemoth included a first-quarter earnings report that destroyed analysts’ estimates and an outlook that promised more gains to come.
Let’s see if Walmart is a stock you should add to your portfolio.
Recession-proof?
Walmart has been one of the steadiest performers over the years; in fact, one might even call it recession-proof. Over the past 10 years, it has averaged an annualized return of 9.5%, but when you add in the reinvested dividends, the average annualized return bumps up to 11.1%. As a testimony to its steady nature, Walmart is considered a Dividend King, as it has increased its annual dividend for 52 consecutive years.
As further testimony, Walmart stock rarely goes too high or too low. Since 2008, it has had just three negative years, and in two of those years, 2009 and 2018, it only lost 3% for the year. When the market tanked in 2022, Walmart stock was statistically flat.
As the discount-retail leader, Walmart outperforms during periods of high inflation or low economic growth as consumers seek out better deals. In the first quarter of its fiscal 2025, that proved to be the case once again as the economy slowed and inflation remained high. However, this time around, that strength came with a bit of a different twist as Walmart saw a spike in business from higher-income earners looking for value alongside middle- and low-income consumers.
“Traffic and sales growth were strong across both stores and digital channels, and we’re pleased with the unit growth. We’re seeing higher engagement across income cohorts with upper-income households continuing to account for the majority of the share gains,” CFO John David Rainey said on the earnings call.
Rainey added that the growth among consumers with annual incomes over $100,000 is driven by convenience as much as value.
“Convenience matters to someone irrespective of what … your income level is, and we expect that to be durable. We don’t expect that to change,” Rainey said.
Walmart management also reported that the new Bettergoods brand has been beneficial in attracting customers across the income spectrum as it offers higher-quality food at low prices, with most products priced under $5.
Earnings spike
The increase in high-income consumers was one of the factors that contributed to Walmart’s strong first-quarter earnings. Revenue rose 6% year over year to $161.5 billion, while the retailer’s gross profit margin improved 42 basis points to 24.1%.
Operating income gained 9.6%to $6.8 billion, while earnings per share (EPS) surged 200% to 63 cents. Adjusted EPS was 60 cents, up 22%.
Another big revenue driver for Walmart was e-commerce, which jumped 21% year over year globally and 22% in the U.S. It was fueled by a surge in store-fulfilled pick-up and delivery. Advertising revenue also rose, jumping 24% year over year.
“When I think about the headlines from the quarter, what goes through my mind is, first, the eCommerce growth. I think the progress we’re making on convenience for customers is a big deal … Our store fulfillment as well as through fulfillment centers, the marketplace is growing, and that brings along with it growth in advertising and membership. It was great to see both of those up 24%,” said President and CEO Doug McMillon on the earnings call.
Is Walmart stock a buy?
Walmart also provided guidance for the second quarter, calling for its net sales to increase by 3.5% to 4.5% and operating income to rise by 3% to 4.5%. The retailer estimated its adjusted EPS at 62 cents to 65 cents, which would be an increase over Q1.
For the full fiscal year, Walmart raised its guidance for net sales, adjusted operating income and adjusted EPS to the high end or slightly above previous estimates. The increases are based on the better-than-anticipated performance in Q1 and an expectation for that momentum to continue.
Walmart’s P/E ratio has jumped a bit to 31, but its forward P/E is 25, and it has a low 0.75 price-to-sales ratio.
I think Walmart stock is pretty much always a buy given its stability and growth over the years, and with uncertain economic conditions ahead and its growth in e-commerce, it looks even better right now. This is not a stock that is going to shoot the lights out, but it will provide nice balance in a portfolio.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
