A stalwart investment through multiple crises, Walmart (NYSE:WMT) held up well during the onset of the novel coronavirus. Indeed, it would be fair to say that WMT stock has fared better than many other famous names.
But as the old market aphorism goes, trees don’t grow straight to Heaven. Minor retracements on the way to new highs are perfectly normal, even for a sturdy asset like Walmart.
But as WMT stock takes a breather, what will drive the shares to fresh highs? There are catalysts on the horizon, the least of which is the American consumer. And as long as the consumer’s buying, Walmart’s shareholders should be smiling.
Crisis? What Crisis?
If you lived in a bubble and only had access to Walmart’s first-quarter fiscal fiscal results, you might not even know that the coronavirus crisis ever happened. In fact, you might imagine that everyone in America is fully employed and eager to shop.
In reality, some retailers are really struggling during this time of high unemployment and stay-at-home mandates. But people can’t function without necessities like basic food staples and paper goods, and they apparently flocked to Walmart to hoard those items.
For Walmart, the first quarter of 2020 included the months of February, March and April. While today there’s talk of reopening the economy, Walmart’s first quarter was a time when the coronavirus crisis was in full effect.
Judging from the data, though, you wouldn’t suspect that there were any problems at all. During that first quarter, comparable sales increased by 10% for Walmart U.S. and by 12% for the company’s Sam’s Club segment.
Social distancing didn’t seem to dent Walmart’s sales as the company successfully navigated the nation’s sudden pivot to online commerce. During the aforementioned quarter, Walmart’s e-commerce segment generated approximately $8.2 billion, indicating impressive year-over-year growth of 74%.
Other quarterly fiscal data confirmed Walmart’s position as an economic powerhouse regardless of crisis conditions. Walmart’s free cash flow came in at $5.3 billion, absolutely smashing the target of $533 million. And the quarterly operating profit margin for Walmart and Sam’s Club was 4.6%, nearly doubling the target of 2.4%.
America Just Keeps on Spending
Even with a hugely successful first quarter, investors in WMT stock have every right to ask what’s going to drive higher share prices. The answer, without a doubt, is America’s pent-up demand for “stuff.”
Sure, it makes perfect sense that people would buy essential items during a pandemic. But the American consumer doesn’t just want necessities. The habit of splurging won’t be squelched by a crisis, no matter how deep or enduring it may be.
Need proof of this? Just take a look at how folks have been spending their $1,200 stimulus checks. You’d think they’d spend it first and foremost on food and other of life’s necessities, closely followed by rent/mortgage payments and electric/water bills.
But apparently, that’s not the American way. Sure, some of the stimulus funds were spent on necessities, but people also engaged in a massive shopping spree on non-essentials.
And where did they go to splurge? You know darned well where they went. Walmart CEO Doug McMillon provides us with the breakdown:
“Call it relief spending, as it was heavily influenced by stimulus dollars, leading to sales increases in categories such as apparel, televisions, video games, sporting goods and toys.”
In the category of sporting goods, Walmart noted an increase in consumer demand for adult-sized bikes. Think about that for a moment. Americans are buying anything and everything, even amid a global pandemic.
Whatever money people get, they’ll spend it at Walmart. And there’s a good chance that more stimulus checks are coming. As Senior White House Economic Adviser Kevin Hassett recently indicated, another round of stimulus payments is “pretty likely.”
The Takeaway on WMT Stock
Given America’s long-entrenched spending habits, two things are assured. One is that any new stimulus payments will be spent immediately and, to some extent, frivolously. The other is that Walmart stockholders will thrive as long as the shopaholic epidemic overrides the viral pandemic.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
