Walmart beats Street with strong Q2 sales, profits

Walmart reported second-quarter income and revenue that topped expectations as inflation-pressured shoppers turned to it for groceries and other essential items.

The discount giant reported net income of $5.15 billion, or $1.88 per share, for the quarter ended July 31, up from $4.28 billion, or $1.52 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings came to $1.77 per share, ahead of analysts' estimates of $1.62.

Revenue grew 8.4% to $152.86 billion, topping estimates of $150.99 billion. Walmart U.S. sales rose 7.1% to $105.1 billion.  Sam’s Club revenue surged 17.5% to $21.9 billion. Both results beat expectations.

U.S. same-store sales increased 6.5% and 11.7% on a two-year stack. E-commerce growth was 12% and 18% on a two-year stack.  The number of transactions were up 1.0% at Walmart U.S. stores and up 9.8% at Sam’s Club., The average ticket increased 5.5% at Walmart U.S. 

The company reported low double-digit comparable sales growth in grocery and high single-digit gains in health and wellness. Sales of general merchandise were down mid single digits amid  softness in electronics, apparel and home products.

Walmart CFO John David Rainey told CNBC that the company is attracting more middle- and higher-income shoppers. About three-quarters of Walmart’s market share gains in food came from customers with annual household incomes of $100,000 or more, Rainey said. 

Walmart’s private brands have also gained momentum, according to Rainey. Sales of the private-label products are growing two times as fast as in the first quarter, he said.

We’re pleased to see more customers choosing Walmart during this inflationary period, and we’re working hard to support them as they prioritize their spending," said Doug McMillon, president and CEO, Walmart. "The actions we’ve taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery put pressure on profit margin for Q2 and our outlook for the year. We made good progress throughout the quarter operationally to improve costs in our supply chain, and that work is ongoing. We continue to build on our strategy to expand our digital businesses, including the continued strength we see in our international markets.”

Walmart released its results the day after it announced an extra perk for member of its paid membership program, Walmart+.  Members of the program will now receive free access to the “essential” tier of the Paramount+ subscription streaming offering. 

Looking ahead to the third quarter, Walmart expects:

• Consolidated net sales growth of about 5%, negatively affected by approximately $1.3 billion from currency fluctuations.
• Walmart U.S. same-store sales, excluding fuel, of about 3.0%.
• Consolidated operating income decline of 8 to 10%.
•  Adjusted earnings per share decline of 9% to 11%.

For the full fiscal year, the company forecasts: 

• Consolidated net sales growth is expected to be about 4.5%. Excluding divestitures, consolidated net sales growth is expected to be about 5.5%.
• Based on current exchange rates, the company expects a headwind of about $2.1 billion in the second half of the year.
• The company maintains its expectations for Walmart U.S. same-store sales growth, excluding fuel, of about 3% in the second half of the year. For the full year, the company expects Walmart U.S. same-store sales growth, excluding fuel, of about 4%.
• Consolidated adjusted operating income is expected to decline 9% to 11%, which improved from the company’s prior guidance of a decline of 11% to 13% and reflects better performance in the second quarter. Excluding divestitures, consolidated adjusted operating income is expected to decline 8% to 10%.
• Adjusted earnings per share are expected to decline 9% to 11%. Excluding divestitures, adjusted earnings per share is expected to decline 8% to 10%.

“I expect a strong finish to the back-to-school season and we will quickly transition to the holidays,” Walmart CEO Doug McMillan said in a statement to analysts.

In the first quarter of fiscal 2023, Walmart posted net income of $2.054 billion, or $0.74 per share, for the quarter ended April 30, down from $2.73 billion, or $0.97 per share, in the year-ago period. Adjusted earnings per share of $1.30 missed analysts’ estimates of $1.48.

However, revenue rose to $141.569 billion from $138.31 billion, topping estimates for $138.803 billion. U.S. same-store sales grew 3%, also more than expected.

Based in Bentonville, Ark., Walmart Inc. operates more than 10,500 stores and clubs under 46 banners in 24 countries and e-commerce websites.