Wal-Mart’s earnings smashed expectations after Target’s weakest quarter

Wal-Mart (WMT) is winning over American shoppers as inflation continues to take its toll.

in the giant retail business Release of second quarter earnings, before the market opened Thursday, Wal-Mart reported same-store sales rose 6.30%. Meanwhile, rival Target (TGT), which reported second-quarter results Wednesday, saw sales drop 5.4% and shared a dismal outlook for the rest of the year.

This comes as consumers’ wallets remain pinched from persistent headwinds such as higher gas prices, a slowdown in the US labor market, the imminent return of student loan payments this fall, higher mortgage rates, higher interest rates and higher grocery costs.

Walk-in traffic increased at Walmart, up 2.8%, along with ticketing, up 3.4%. The company’s focus on e-commerce appears to be working, as online sales rose 2.3% in the quarter.

Sales at Walmart’s wholesale division, Sam’s Club US, also got a boost last quarter, rising 5.5%, but that was slightly below estimates of 5.58%. The back-to-school and automobile categories performed well as consumers packed their bookshelves and backpacks ahead of the back-to-school season.

In the third quarter, Walmart expects sales to increase 3% and adjusted earnings per share to be between $1.45 and $1.50. Walmart also raised its guidance for the full year. The retail giant expects sales to increase roughly 4% to 4.5% and raised its earnings forecast to a $6.36-6.46 range from the previous fiscal year’s $6.10-6.20.

Walmart stock is up more than 1% in pre-market trading.

Earnings summary:

That’s what Wal-Mart reported compared to Wall Street estimates, according to Bloomberg data.

  • Net revenue: 161.6 billion dollars, compared to the expected 159.7 billion dollars

  • Modified diluted EPS: $1.84 vs. $1.70 expected

  • Same-store sales growth in the United States: 6.3% vs. 4.04% expected

  • Traffic growth: 2.90% vs. 1.63% expected

  • Ticket growth: 3.40% vs. 2.00% expected

  • The growth of e-commerce: 2.30% vs. 1.54% expected

  • gross profit margin: 23.38% vs. 23.55% expected

  • stock growth: -5.34% vs. 5.54% expected

Walmart by the numbers (Credit: Yahoo Finance, Source: Walmart)

Walmart by the numbers (Credit: Yahoo Finance, Source: Walmart)

What distinguishes us: Walmart USA gMarket share across categories

E-commerce is a booming business for the retail giant.

In the second quarter, overall net e-commerce sales increased 24%, led by pickup and delivery. Online sales now make up 15% of all sales, to $24 billion globally.

In the US, Walmart continues to gain market share, gaining high single-digit sales growth as grocery shoppers buy more food as well as personal and pet care products.

The company also noted that it’s seen growth in private label brands, which is up 40 basis points, a business that’s been growing in recent years.

“We’ve seen customers trading from chicken and pork straight to chicken and ground beef, from things like shrimp and steak,” Walmart Chief Financial Officer John David Rainey told Yahoo Finance. He added that customers “also trade in private label, and that’s about 20% of our business for Walmart US. And frankly, the quality of those items is much better than it was several years ago.”

A customer shops for a turkey at a Walmart store in Chicago, Illinois, US, November 20, 2018. REUTERS/Kamil Krzyczynski

A customer shops for a turkey at a Walmart store in Chicago, Illinois, US, November 20, 2018. REUTERS/Kamil Krzyczynski

Inflation in the grocery category remained flat but moderate at 4% sequentially.

Its health and wellness business also saw a significant increase in teen sales in the most recent quarter. The company cited strong drugstore sales reflected in the number of scripts, higher mix of prescription versus generic prescriptions, strength in immunizations, and branded drug inflation.

Since 2019, the retail giant has built Walmart Health, with the goal of making health care more accessible using the retailer’s current U.S. retailer footprint of 4,684 locations.

However, Wal-Mart wasn’t immune from consumers turning away from discretionary items. Last quarter, the company saw general merchandise sales decline by low single digits in items such as apparel, home goods, and sporting goods.

Meanwhile, in the background, Walmart is building one of its own side hustle. In the US, Walmart has seen a 36% rise in advertising compared to last year. The company renamed its media business in 2021 to Walmart Connect.

Guggenheim analyst Robert Darbull said the business could represent a multibillion-dollar opportunity for the company, given Wal-Mart’s “vision, scale, and ambition.”

What else we’re watching: The C-suite’s makeover

Wal-Mart announced Wednesday that Sam’s Club CEO and President Kathryn McClay has moved to a new position as President of the International Division, replacing Judith McKenna who is retiring, effective September 11, 2023.

As part of that change, Walmart of America CEO John Furner further outlined the executive changes in a letter to all Walmart employees obtained by Yahoo Finance.

Chris Nicholas, who previously served as COO and CFO prior to that, has been promoted to Sam’s Club US CEO and President. Kieran Shanahan, an executive in the International Operations Divisions, has been named Executive Vice President and Chief Operating Officer of Walmart US.

What the analysts said about the advance earnings:

  • “We continue to believe Wal-Mart is well positioned in an uncertain macro environment, with its price and value proposition as convenience and assortment increase, despite persistent indicators of consumer pressure, including stubborn food price inflation.” Robert Durbull, Guggenheim

  • “Drawdowns continue to drive price leadership. Our validations indicate a strong list of drawdowns for key Back-to-School items, which boosts our near-term confidence in corporate direction…Drawdowns reinforce price leadership in grocery and we expect to see concentration larger on general merchandise in the second half of the year.We believe the upside for enterprises may be more limited as inflation eases, with the data suggesting results consistent with our view of 3.9% in the US (same-store sales).However, we remain We expect a mix of expense discipline and a more appropriate merchandise mix to drive continued earnings strength.” – Edward Yerma, Piper Sandler

  • (Walmart) is basically turning a traffic corner, yet the stock refuses to break out and the market is trailing 300 basis points (year-to-date). We think a clean win and a rally could take the street to $6.50 in ’23 and $7 in ’24. .” – Greg Mellish, Evercore ISI

This story is broken down and updated.

A shopper pushes a cart across a Walmart parking lot on Black Friday morning in Wilmington, Delaware, on November 25, 2022. — With inflation soaring, retailers expect many shoppers to be looking for particularly good deals as discretionary spending falls.  (Photo by Samuel Corum/AFP) (Photo by Samuel Corum/AFP via Getty Images)

A shopper pushes a cart through a Walmart parking lot on Black Friday morning in Wilmington, Del. on November 25, 2022. (Samuel Corum / AFP via Getty Images)

Brooke DiPalma is a correspondent at Yahoo Finance. Follow her on Twitter at @BrookeDiPalma Or email her at bdipalma@yahoofinance.com.

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