Walmart – The Best Offense starts in Defense

Last week, Walmart released their Q1 2025 results. The group’s revenue reached $161.5 billion for the quarter, growing 6% year-on-year. Operating income rose by 9.6% to $6.8 billion. Walmart’s gross margin increased from 23.7% a year ago to 24.1% this quarter. This improvement was due to fewer inventory markdowns compared to last year. Additionally, Walmart’s advertising business, which typically has a higher gross margin than general retail, has been growing faster than other parts of the business, contributing to the overall margin increase. With this in mind, Walmart’s management team stressed that they are trying to keep their product gross margin as low as possible so as to incentivise more customers to shop with them. Walmart indicated that they have seen a meaningful increase in higher-income earners shopping at their stores. Walmart’s e-commerce business grew by 22% on a quarter-to-quarter basis, showing good returns on their technology spend.

Walmart and other large retailers generally perform well in inflationary environments. They can buy in bulk, which helps lower their prices. Additionally, when they place orders in advance, they secure prices at that time. Once the goods are delivered and ready to be sold, the new, higher inflationary prices are evident in the economy. This allows them to sell at those higher prices or slightly less, giving the impression of saving customers money compared to smaller and/or less efficient businesses that order closer to the time of sale.

Walmart faces intense competition worldwide. They not only compete against local retailers but also against giants like Amazon, which has a highly profitable cloud business. From its inception, Walmart has focused on serving underrepresented locations, offering customers an all-in-one store with “everyday low prices.”

Walmart is held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio Clients.