Walmart CEO Highlights 3 Reasons for Optimism in 2021

Walmart (NYSE:WMT), the international retail behemoth, reported better-than-expected fiscal 2022 first-quarter results on Tuesday, May 18. The company benefited as consumers had more money to spend thanks to the U.S. government’s most recent fiscal stimulus.  

Sales grew year over year, despite tough comparisons. Q1 last year included the panic-buying phase of the pandemic when consumers gathered cleaning supplies, toiletries, nonperishable foods, and other essentials as they prepared to hunker down for the long haul. For that reason, investors and management were not expecting Walmart to top last year’s sales. However, the actual results were so much better than expectations that it gave Walmart’s CEO increased optimism for the calendar year 2021.

A man holding up a notebook that reads

Stimulus checks fuel spending at Walmart. Image source: Getty Images.

3 reasons for optimism this fiscal year

Here’s what CEO Douglas McMillon had to say on the matter in the company’s conference call following the earnings release: 

2021 brings its own unique challenges and uncertainty, but overall, my optimism is higher than it was at the beginning of the year for several reasons. In the U.S., economic stimulus is clearly having an impact, but we also see encouraging signs that our customers want to get out and shop. Our execution is improving, despite the hurdles presented by the pandemic.

Indeed, stimulus payments are having a positive effect and are a reason for optimism. U.S. consumers had over $300 billion deposited in their bank accounts in March. That gave them the means and the confidence to go out and spend. But perhaps what’s giving the Walmart CEO confidence for the rest of 2021 is that folks saved a big part of their stimulus money — meaning people still have lots of money to spend. In fact, the savings rate was 27.6% in March. And that could fuel sales growth for the rest of 2021.

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Another reason is that vaccinations against the coronavirus are progressing worldwide, and that’s encouraging folks to get out of the house more often. That’s showing up at Walmart through the mix of items consumers are buying. In the most recent quarter, the sales mix shifted toward apparel and general merchandise and was less concentrated on essentials. Consumers buying higher-margin items is certainly something to be encouraged about if you’re CEO.  

Finally, Walmart is learning to operate better. Doing business during a pandemic is a tough task, and it raises costs and inefficiencies. However, the company has made adjustments to how it operates, and some costs are beginning to come down as COVID-19 cases are decreasing in some parts of the world and governments are subsequently easing restrictions on businesses. 

What this could mean for investors 

With such an encouraging quarter behind it, Walmart is raising expectations for the rest of fiscal year 2022. Net sales growth is now expected to be in the low- to mid-single digits compared to the prior expectations of a low single-digit percentage increase. Operating income and earnings per share are now expected to increase by low double digits, increasing from the prior guidance of both being flat or up slightly.

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Walmart is trading at a reasonable forward price-to-earnings ratio of 24. Given that consumers still have plenty of money to spend and are starting to leave the house more often, Walmart could continue growing sales in the near term. Investors looking for a reliable stock during a volatile market should add Walmart to their watch lists. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/05/22/walmart-ceo-highlights-3-reasons-for-optimism-in-2/

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