Walmart earnings smash expectations after weaker second quarter from Target

Walmart beats earnings expectations as US foot traffic and online sales surge, outperforming Target amid challenging economic conditions.

People in the U.S. went to the retail giant to buy food and shop online.
Walmart (WMT) is getting more and more customers in the US as inflation keeps getting worse.

Bloomberg data shows that Walmart’s same-store sales rose by 6.30% in its second quarter earnings report, which came out before the market opened on Thursday. This was more than the 4.04% rise that was predicted.

Walmart’s foot traffic went up by 2.8%, and people spent more money, which went up by 3.4%. During the quarter, online sales went up 2.3%.

“Our customers and members are resilient,” Walmart CEO Doug McMillon told investors on an earnings call. “They want to get a good deal, and they trust us to help them. People of all income levels are coming to us more often to find ways to save money on everyday needs. That gives us a chance to increase sales in areas where people have more freedom.

Meanwhile, Target (TGT), one of its competitors, reported its Q2 numbers on Wednesday. Sales were down 5.4%, and the company gave a gloomy outlook for the rest of the year. This comes at a time when consumers’ wallets are still tight because of things like higher gas prices, a slowing US job market, the return of student loan payments this fall, higher mortgage rates, higher interest rates, and higher prices for food.

Last quarter, sales at Sam’s Club US, Walmart’s bulk business, also went up by 5.5%. This was a bit less than what was expected, which was a rise of 5.58%. Back-to-school items and cars did well because people were getting ready for school by filling up their bookcases and bags.

“When back-to-school sales are good, it’s usually a good sign for Halloween, Christmas, and GM in the second half,” McMillon said. “I do think our food and consumables percent to total at Walmart US will still go up.”

Walmart thinks that its sales will go up by 3% in the third quarter and that its adjusted earnings per share will be between $1.45 and $1.50. Walmart also raised its outlook for the whole year. The retail giant sees sales to go up by about 4% to 4.5% and raised its earnings forecast for the fiscal year from $6.10 to $6.20 to $6.36 to $6.46.

On Thursday morning, Walmart stock fell by 1%.

The earnings rundown:

Here’s how Walmart’s earnings report compared to what Wall Street expected, according to data from Bloomberg.

  • $161.6 billion in net sales compared to $159.7 billion forecast
  • Difference between actual and expected diluted earnings per share (EPS): $1.84
  • US same-store sales rise was 6.3% instead of the expected 4.04%
  • Sam’s Club stores in the US grew by 5.5% instead of the $5.58 predicted.
  • Walmart US same-store sales growth: 6.40%, instead of the 4.29 predicted
  • Increase in traffic of 2.90%, whereas only 1.63 percent growth was predicted.
  • 3.40 percent growth in ticket sales, instead of the 2.0 percent expected
  • 2.30 percent growth in e-commerce versus 1.54 percent predicted
  • Instead of a 23.55% gross margin, we only saw 23.38 percent.
  • Inventory growth: -5.34% instead of the -5.54% that was expected
Walmart beats earnings expectations as US foot traffic and online sales surge, outperforming Target amid challenging economic conditions.

What stood out to us: Walmart US gaining market share across categories

The company’s online store is a huge success.

Pickup and delivery services drove a 24% increase in quarterly net revenues for all of e-commerce. Online sales have increased to $24 billion, or 15% of the total retail market.

Walmart’s market share in the United States keeps growing by high single digits as more people shop there for food, pets, and personal care items.

The company also reported growth in its private label products, which it has been expanding in recent years. This segment was up 40 basis points.

Walmart CFO John David Rainey told Yahoo Finance, “We’ve seen customers that are trading down from chicken and pork straight into chicken and ground beef, from things like shrimp and steaks.” Additionally, he mentioned that “customers are trading into private label,” which accounts for roughly 20% of Walmart US’s sales. And, truth be told, the products’ quality has greatly improved over the past few years.

While food price inflation remained stubborn, it slowed by 4% from the previous quarter.

Sales in the company’s health and wellness division also increased by the high teen percentage last quarter. The company pointed to rising prices for name-brand medications as the reason for the success of its pharmacy business, which is shown in rising script counts and a shift away from generic medications.

In 2019, Walmart launched Walmart Health with the goal of expanding access to healthcare throughout its 4,684 store network in the United States.

Even Walmart was affected by customers’ reduced interest in luxury goods. General merchandise sales, which include clothing, housewares, and sports equipment, fell by the low single digits for the corporation in the most recent reporting period.

Meanwhile, Walmart is quietly expanding one of its ancillary businesses. Walmart’s advertising budget in the United States increased by 36% over the previous year. The media division was renamed Walmart Connect in 2021.

Robert Drbul, an analyst at Guggenheim, believes the venture has multibillion-dollar potential because to “Walmart’s vision, reach, and ambition.”

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What else we’re watching: C-suite changeup

On Wednesday, Walmart revealed that Kathryn McLay, the current CEO and president of Sam’s Club, will be taking over the worldwide division from Judith McKenna, who will be retiring on September 11, 2023.

In a letter to all Walmart employees received by Yahoo Finance, Walmart US CEO John Furner highlighted other management moves.

Chris Nicholas was most recently the Chief Operating Officer and before that the Chief Financial Officer at Sam’s Club US. International Operations executive Kieran Shanahan has been promoted to the position of chief operating officer and executive vice president for Walmart in the United States.

What analysts were saying after earnings:

  • “We estimate between 22 and 24 [million] WMT+ members, thus we remain excited for growth within WMT’s margin accretive strategies, which include +35% growth in advertising, marketplace, and WMT+ memberships. Reducing inventory by 5.6% compared to sales growth of +5.9% is indicative of effective inventory management. To quote TD Cowen’s Oliver Chen:
  • WMT’s annual forecast was so accurate that the company increased it for a second consecutive quarter. As investors look ahead to the next fiscal year, we believe WMT has a number of opportunities to maintain its recent success and expand its profit margins. The profitability of 1P e-commerce appears to be reaching a tipping point. Advertising and the 3rd-party marketplace are examples of higher-margin industries that are expanding at a faster rate than the core. by Arun Sundaram, CFRA
  • Given the 2Q beat and increased FY23 projection, we anticipate that the stock will trade higher today. Given WMT’s general merchandise improvement in 2Q, doubts about TGT’s discretionary tendencies are to be expected. Investment Banker Kate McShane

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