Walmart On Thursday, the discounter raised its full-year forecast as it builds on its reputation for low prices to attract grocers and boost online spending.
The big box beat Wall Street expectations for retail sales and profit. E-commerce sales for Walmart US also increased by 24%.
Walmart said it now expects consolidated net sales to increase about 4% to 4.5% for the full fiscal year. It said adjusted earnings per share for the year would range between $6.36 and $6.46. This compares to prior guidance for consolidated net sales gains of 3.5% and adjusted earnings per share of between $6.10 and $6.20.
In an interview with CNBC, Chief Financial Officer John David Rainey said Walmart saw “modest improvement” in sales of big-ticket and discretionary items such as electronics and home furnishings during the quarter. Sales of these products have weakened for more than a year as Americans spend more on necessities such as groceries.
He said he felt better than he did three months ago. However, he described the consumer as “selective or discerning”. He said seasonal highlights like the Fourth of July holiday and back-to-school helped boost sales.
The company’s shares fell more than 2% on Thursday.
According to Refinitiv’s consensus estimates, the company’s earnings for the three-month period ended July 31 compared with analysts’ expectations:
- Earnings per share: $1.84 adjusted, $1.71 expected
- Revenue: $161.63 billion, expected $160.27 billion
Walmart’s fiscal second-quarter net income rose 53% to $7.89 billion, or $2.92 per share, compared with $5.15 billion, or $1.88 per share, a year earlier.
Customers visited Walmart’s stores and websites more often and bought more when they did. For Walmart US, transactions were up 2.9% and the average ticket was up 3.4%
Same-store sales for Walmart US rose 6.4% in the second quarter, excluding fuel, compared to the year-ago period. That’s higher than the 4.1% increase analysts were expecting, according to FactSet.
At Sam’s Club, same-store sales excluding fuel rose 5.5%, in line with analysts’ expectations.
Walmart’s U.S. online sales grew as customers bought more products from the company’s growing third-party marketplace and ordered more for in-store pickup and delivery.
“It really shows that the value proposition for Walmart is more than just low prices or value. Today, it’s convenience,” Rainey said. “And so we lean heavily on that and really on both sides of that part of our business.”
Walmart has gained momentum with new revenue streams, including selling more ads and persuading more shoppers to sign up for its membership program, Walmart+. Those high-margin businesses are the main reason CEO Doug McMillon says he expects profits to grow faster than sales over the next five years.
This upward trajectory continued in the most recent quarter. Sales at Walmart Connect, the company’s US advertising business, grew 36% year-over-year.
Also this week, Walmart announced changes to its leadership ranks. On Wednesday, Walmart International CEO Judith McKenna, a 27-year veteran, said she will retire in mid-September. Sam’s Club CEO Kat McLay will step into his role. Chris Nicholas, the current chief operating officer of Walmart US, will become the new CEO of Sam’s Club.
Winning over thrifty customers
It stood out from other retailers like Walmart Targetstruggling with softer sales. It is better insulated from changing shopper tastes and reactions to economic factors such as high inflation because it sells more everyday staples as the nation’s largest grocer.
Rainey said he continues to be surprised by consumers and their “willingness to spend.” But he added that they still want to save money.
Customers usually buy more food from Walmart’s private brands, which are cheaper. Private label sales in Walmart’s US grocery department grew 9% year-over-year. These brands account for 20% of Walmart’s total US sales.
Shoppers can also try to save by preparing more of their own food than eating out. Walmart has noticed “there’s been a bit of a shift toward cooking from home,” Rainey said. There was an increase in the sales of ready meals and cooking tools such as mixers and blenders.
While overall merchandise trends are improving, sales are still down in the low single digits year over year.
Walmart’s limited-time sales called Rollbacks have been especially popular. Walmart’s U.S. CEO John Furner said on the earnings call that the company has seen an increase in sales when it offers items such as backpacks and chips at a discount. He added that there is more pullback in food than there was a year ago.
Cooling inflation, more optimism
While other problems persisted, Walmart saw inflation ease.
A year ago, Walmart and other retailers were scrambling to clear unsold merchandise. This led to both higher inventory levels and steeper discounting.
Inventory at the end of the second quarter was down 5% from a year ago, Rainey said on the earnings call. Walmart also has fewer discounts, he said.
Food prices are holding steady, but general merchandise prices are down from last year, Rainey said. However, some basic food items have fallen in price.
Shoppers are buying more fresh meat, seafood and eggs, Rainey said.
CEO Doug McMillon said back-to-school, one of the biggest seasons for retailers, is off to an early and strong start. These sales trends typically show patterns for the coming months, so they bode well for Halloween, the holidays, and general merchandise sales in the second half of the year.
Even so, Rainey said the company is planning conservatively and watching the amount of total merchandise it orders. He said consumers are facing new pressures, such as repaying student loan payments that have been suspended for more than three years due to the Covid pandemic.
“Although inflation is moderate and employment level is stable, credit markets have tightened. “Energy prices are higher and some customers are facing additional costs due to the resumption of student loan payments in October. Therefore, we continue to be right-sized in our outlook.”
Correction: Walmart’s net income for its fiscal second quarter rose 53% from a year ago. In the previous version, the percentage was displayed incorrectly. The company’s previous guidance was for adjusted earnings of between $6.10 and $6.20 per share. A previous version mischaracterized the instruction.