Inflation is having a real impact on American consumers and spending is shifting towards basic necessities from higher ticket items. Walmart’s results are generally similar to Amazon which saw negative e-commerce margins due to overstaffing, warehouse overcapacity, and higher fuel costs that forced the e-commerce to add a 5% fuel surcharge for the first time in company history. While the issue of overstaffing is largely internal and within management’s control, input and fuel costs will likely take a longer period to resolve under the current macro backdrop.

Given last year’s performance benefited from government stimulus checks, revenue will also be facing tough comps this year.

Despite e-commerce growing at just 1%, Walmart Connect (advertising) was a bright spot with 30% YoY growth. The advertising platform is built with technology from The Trade Desk, which is a leading independent DSP that has successfully entered the shopper marketing space which management believes to be a $200 global TAM (TTD analysis here).

• Walmart’s bottom line missed estimates due to inflation.
• Higher wage expenses, product and fuel costs are to blame.
• Shares fairly valued for now, will remain on the sideline until better risk/reward