Walmart’s high-flying stock slipped Thursday, falling more than 5% after the company reported earnings. But there were also some positive signs in the results.
The retailer beat Wall Street’s expectations on both the top and bottom line, but guidance for the current fiscal year didn’t quite clear analysts’ high bar. Walmart expects net sales to grow 3% to 4%, and operating income to rise 5% to 7%, excluding some one-off costs.
However, there is good reason to think Walmart’s guidance is conservative. That’s partly because high-margin sources of revenue are still growing at a healthy clip and have room to grow.
At Walmart U.S., advertising revenue grew 24% in the quarter ended Jan. 31 compared with a year earlier. That marks the 10th straight quarter of 20%-plus growth since the retailer started disclosing that metric. Membership income from the Walmart+ paid subscription program rose by a double-digit percentage. Revenue from its third-party online marketplace grew 34%.
In all, advertising, membership and Walmart Fulfillment Services made up more than half of operating-income growth in the last quarter, the company told investors.
In the U.S., meanwhile, the company said it was losing a lot less money from e-commerce selling. One promising sign here is that Walmart’s customer base, which now includes more higher-income households, seems willing to pay up for faster delivery.
The company said more than 30% of customers that get something delivered from the store pay extra to have items arrive within a few hours. On Christmas Eve, about 77% of orders were express delivery.
At the same time, Walmart still has room to cut costs from e-commerce. For instance, it said in November that more than half of fulfillment-center volume is automated, which means it could still have about half more to go.
Even after the pullback, Walmart’s shares still trade at about 35 times forward-12-month earnings, a tad higher than Amazon’s multiple. Tech-like valuations come with a higher bar for growth-but Walmart has ways to keep growing.