3 Things Investors Missed in Walmart's Earnings Announcement

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It’s no secret that Walmart (NYSE:WMT) is having a great year. The world’s leading retailer just announced stellar momentum heading into the peak holiday shopping season while boosting its earnings outlook for 2021.

But there was better news than investors would have seen by just following the headline sales and profit metrics. Let’s look at some less-followed data points that point to healthy returns for shareholders ahead.

Image source: Getty Images.

1. Store visits

Walmart’s 9% comparable-store sales growth was surprisingly robust. That spike marked accelerating demand trends, in fact, with two-year sales gains speeding up to 15.6% from 14.5% in the prior quarter.

Look beyond the headline growth and the news is even better. Walmart’s growth came mainly from rising customer traffic, in contrast to other retailers who reported earnings recently. The chain notched a 6% increase in transaction volume and a 3% boost in average spending.

The grocery aisles were standouts, with sales surging 10% as Walmart gained market share from rivals like Kroger. Executives said in a conference call with investors that food sales grew at the fastest rate in six quarters. “Strong sales trends were led by grocery, health and wellness, and apparel,” CFO Brett Biggs explained.

2. Return on invested capital

Walmart’s return on invested capital (ROIC) is sitting at its highest level in years. This key efficiency metric jumped to 14.5% from 13.7% a year ago thanks to several encouraging financial trends including rising earnings and a falling share count.

Walmart has ramped up its buyback spending to over $7 billion so far in fiscal 2022. But the chain is also benefiting from accelerating investments into the business – particularly on the e-commerce platform.

“We’re innovating in the supply chain and adding capacity,” CEO Craig Menear said, “and we’re building businesses like Walmart Go Local, Walmart Connect, Walmart Luminate, [and] Walmart Plus.” These initiatives include bets in high-growth areas like data services and subscription services and could boost sales and margins over the long term.

3. Inventory levels

Investors were happy to hear Walmart say that sales will rise about 5% in the core U.S. market over the holiday season. That outlook implies the company will add a whopping $30 billion to its annual sales footprint this year on top of surging gains in 2020.

Yet the best sign of a strong Q4 ahead is that inventory jumped 12%, year-over-year. Normally, a boost like that would be a warning flag for a retailing business. But it is bullish in this case, given the accelerating demand trends and the supply chain challenges hitting the industry.

Walmart used its unique advantages, especially its retail industry clout, to pack its stores and online segment with in-demand products by late October. While that push reduced cash flow in Q3, investors should look at the move as a down payment in preparation for a blockbuster holiday season.

And, because the business is gaining efficiency, shareholders should see even better returns from those sales gains through late 2021 and into the new fiscal year ahead.

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.