Walmart (WMT 0.09%) reported its fiscal 2020 first quarter earnings Thursday before the market opened, and the results were robust by most measures, though profits were pressured by competition and growth initiatives. The company continued to build out its e-commerce operations and to respond to the competitive initiatives of Amazon.com (AMZN 0.23%).
There was plenty to like in Walmart's financial report. Let's dig in to uncover the most important takeaways from the company's earnings as well as management's take on the results.
1. Strong sales growth
Walmart generated revenue of $123.9 billion, up about 1% year over year. When accounting for the lowered numbers caused by unfavorable foreign currency exchange rates, the results would have been even better (revenue of $125.8 billion, up 2.5%).
Comparable-store sales in the U.S. helped drive the gains, increasing 3.4% year over year, making it Walmart's best first-quarter comps in nine years. It also marked the fourth consecutive quarter with comparable sales above 3%.
2. Competition is hitting the bottom line
While top-line growth continued to trudge upward, investment in future growth combined with rising competition from Amazon and others continued to pressure its results. Operating income of $4.95 billion declined more than 4% year over year.
Walmart continues to develop opportunities to better compete, like its same-day grocery delivery, which is offered at 1,600 stores, and grocery pickup, which is available at 3,100 locations. The company is also investing in Flipkart, the e-commerce player in India it acquired last year.
While these efforts boost the company's revenue, they will continue to pressure margins and the bottom line for the foreseeable future.
3. E-commerce continued to impress
E-commerce sales grew 37% year over year, reflecting strong growth in online grocery, as well as the home and fashion categories on Walmart.com, while Sam's Club saw digital sales growth of 28%.
Walmart CEO Doug McMillon said the company was "continuing our transformation to become more of a digital enterprise." He added that not only was management encouraged by the revenue growth from its e-commerce operations, Walmart was also making progress toward its goal "to improve contribution profit."
4. Tariffs will raise prices
In a prepared statement, Walmart CFO Brett Biggs said the company was "monitoring the tariff discussions and are hopeful that an agreement can be reached." He also said Walmart would "actively manage pricing and margins as warranted."
Lest there be any doubt about the impact, however, Biggs put it more bluntly during the conference call: "We're going to continue to do everything we can to keep prices low. That's who we are. However, increased tariffs will lead to increased prices."
The company plans to maintain its ""low-price leadership" and will "manage costs on an item-by-item basis" by sourcing products from different countries and working with suppliers' "cost structures to help manage higher tariffs."
5. Continued competition with Amazon
Just weeks after Amazon announced a plan to offer free one-day shipping to Prime members, Walmart rolled out next-day shipping on a selection of items to counter the move. The items will be listed on a special page on its website, and Walmart plans to offer 200,000 products to 75% of the U.S. population by year-end. The service has already been rolled out in Phoenix, Las Vegas and southern California.
Walmart said next-day delivery will actually cost less than its two-day shipping, since the available items will ship directly from a warehouse closest to the customer and will be packaged in one box rather than arriving in multiple shipments from different locations.