Investors had expected Walmart (NYSE:WMT) to report strong sales growth in its fiscal 2021 first quarter (which ended May 1) given the rush to stockpile food and other essential products in March, but the retail giant blew those expectations away.

Walmart posted comparable sales growth of 10%, with U.S. e-commerce sales jumping 74%. Sales were up at all three of its business segments, rising by about 10% at Walmart U.S. and Sam's Club and increasing 3.4% at international stores. Overall revenue rose 8.6% to $134.6 billion, topping expectations at $130.3 billion. 

Like its retail peers, Walmart paid significant bonuses in the quarter to front-line employees taking on extra work and risk during the pandemic. Those cost $755 million, and the company spent another $175 million on accelerated bonuses related to attendance. As a result, gross margin fell by 66 basis points, but the company gained that back by leveraging operating expenses with its strong sales growth.

Operating profit rose 5.6% year over year to $5.2 billion, and adjusted earnings per share ticked up from $1.13 last year to the current $1.18. That accomplishment, growing profits during a difficult period, will be exceedingly rare during the first quarter -- non-essential retailers saw their performance obliterated, and even essential chains had to ramp up spending on things like employee bonuses and additional supply chain costs.

A checkout area at a Walmart.

Image source: Walmart.

Standing out amid the retail elite

Walmart came prepared, and its ability to grow profits stood out among retail's elite: Out of Amazon (NASDAQ:AMZN)Home Depot (NYSE:HD), and Target (NYSE:TGT), it was the only one to generate net income growth in the quarter. Even Costco (NASDAQ:COST), which has yet to reveal costs during the pandemic quarter, said that comparable sales adjusted for fuel were just flat in April as closures in ancillary segments like its food court, optical, and hearing aid segments cut into otherwise strong comparable sales growth of 11.2% in the quarter.

Amazon, Walmart's biggest rival, saw a more modest acceleration in the period, though its results capture January-March, a month earlier than Walmart's first quarter. Like Walmart, Amazon spent and hired aggressively at the beginning of the crisis, saying it would pay $700 million in bonuses through May 16; however, overall income at Amazon fell from $4.4 billion in the quarter the year before to $4 billion, and in its North American e-commerce business operating income fell from $2.3 billion to $1.3 billion despite 29% sales growth. That indicates that Amazon wasn't as well prepared or well-positioned for the sudden spike in demand as Walmart. Amazon's earnings per share fell from $7.09 in the year-ago quarter to $5.01 as Q1 2020 results were partially impacted by revaluations in equity securities. 

Like Walmart, Home Depot saw strong growth, with comparable sales up 6.4% globally and 7.5% in the U.S.; the home improvement leader also paid out a large employee bonus of $850 million in the quarter. Home Depot's operating income in the first quarter fell 8.9% to $3.3 billion as selling, general, and administrative costs jumped 18%, also indicating that the company's operations were strained by the pandemic and the changes in consumer demand it caused. Earnings per share declined from $2.28 to $2.09, though the company said EPS would have been $2.69 without the additional costs to support front-line employees. 

Target had not reported first-quarter earnings at the time of this writing, but the big-box retailer warned last month that operating profit would fall by more than 5 percentage points in the quarter, essentially wiping it out, due to employee bonuses, shifts to lower-margin categories and digital fulfillment, and inventory writedowns in apparel and accessories. 

The perfect coronavirus stock?

Walmart already had an advantage over its peers coming into the crisis, as it generates a majority of sales from groceries. With restaurants likely to be hobbled for the duration of the pandemic, that means groceries will take a greater share of Americans' food budget, providing a tailwind for the retailer. Grocery comparable sales rose in the low double digits in the quarter.

However, the numbers above also show that Walmart's business model and its e-commerce operation are stronger than those of its peers, as Walmart's operating costs barely budged from the stress of the pandemic. In fact, it gained operating leverage. Even Amazon could not absorb the additional costs as Walmart did. That's a sign that Walmart has a competitive advantage that should endure even after the crisis.

In addition to its strength in grocery, the company has long been a winner during recessions, and its reputation for low prices should only give it an advantage as consumers look to cut back on spending in a down economy.

With a recession-proof business model, its strength in grocery, and its ability to ramp up e-commerce and absorb shocks, Walmart looks like the biggest winner in the retail sector during the pandemic.