Walmart Continues to Grow; Expects E-commerce Revenues to Reach $75 Billion
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Walmart continues to make gains in a turbulent retail environment thanks to its growing e-commerce, grocery and domestic businesses.
“We had another strong quarter in every part of our business,” Doug McMillon, president and chief executive officer of Walmart Inc., said in a statement. “Our global e-commerce sales are on track to reach $75 billion by the end of the year, further strengthening our position as a leader in omnichannel. We grew market share in U.S. grocery, added thousands of new sellers to our marketplace, rapidly grew advertising businesses around the world and we’re finding innovative new ways to commercialize our data and build technology. We have a unique ecosystem of products and services designed to serve customers in broader, deeper ways and we’re grateful to our associates for making it all happen.”
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Tuesday morning’s earnings results revealed total company revenues for the three-month period ending July 31 were up 3.3 percent to $141 billion, compared with nearly $138 billion a year earlier. Sales in the U.S. division increased 5.3 percent to $98.2 billion, up from $93.3 billion a year earlier. Revenues at Sam’s Club rose nearly 14 percent during the quarter, year-over-year, to $18.6 billion, up from $16.4 billion a year earlier. E-commerce sales in the U.S. rose 6 percent during the quarter, year-over-year, or 103 percent compared with 2019’s second quarter. Comparable grocery sales in Walmart U.S. were up 6 percent, year-over-year, driven by growth in stores.
Across categories, things like grocery, health and wellness, apparel, automotive, travel, party supplies and back-to-school essentials, such as lunch boxes, backpacks and stationery, were in demand during the last three months, as consumers increasingly flocked to physical locations.
“Customer behaviors changed during the quarter as people were shopping with us more in stores than online,” McMillon told analysts on Tuesday morning’s conference call. “I think some people view stores these days as boring; we don’t. The good news for us is that we can serve them either way. And of course, they get to choose.
“We’re focused on, how do we do a better job with all the inputs related to omni?” the CEO continued. “And that’s hard work. And building digital products that marry e-commerce with stores takes more work than just building an e-commerce solution; [it] takes more time, takes more complexity, but that’s where the secret sauce is. And if we can continue to blur the lines so that customers and members can shop however they want to shop, whenever they want to shop, the output metrics that we sometimes measure of e-comm versus store growth, for example, they’ll be what they are. But this quarter is kind of a good example of the fact that we can be somewhat indifferent. We’re trying to build a model where we’re completely indifferent to top-and-bottom line [growth] as it relates to how people shop.”
Meanwhile, while in-store traffic continues to pick up steam, the e-commerce business holds its own with a sizable portion of overall sales.
“In some periods, in-store shopping will lead the way, and in some, e-commerce will lead the way, while we’re always striving for more in each part of the flywheel,” Brett Briggs, executive vice president and chief financial officer, said on the call. He added that online shopping revenues are not only on track to reach $75 billion this year, but also $100 billion in the near term.
To help the business grow even further, Walmart will continue to make investments “all the time,” said McMillon.
“We manage the short term and the long term,” he said. “As everybody knows, we’re a company that’s particularly focused on the long term, particularly focused on the top line, [in order to] manage the bottom line.
“The business is changing shape,” McMillon said. “And I think that’s the key. We’re not just buying and selling merchandise in Supercenters at this point. We’re changing how the company is comprised. If you look at — just imagine a bar charter revenue or a bar charter profitability — the mix is shifting. And that unlock, as we stick with it, creates a different financial equation than what we would have had years ago.”
Company headwinds included cost pressures in the supply chain, inflation and Walmart International, where revenues fell more than 15 percent to $23 billion, compared with $27.2 billion the same time last year.
While markets such as India, China and Mexico are rapidly expanding, Briggs pointed out on the call that “international divestitures significantly affect year-over-year comparisons.
“In addition, the pandemic continues to create both tailwinds and headwinds for the business. U.S. government stimulus benefited sales this year and last year, but many international markets continue to be negatively affected by COVID-19 and related government operating restrictions. COVID-19 costs remained elevated, but significantly lower than last year.”
The company logged $4.2 billion in consolidated net income as a result, down from nearly $6.5 billion a year earlier.
“Walmart’s same-store sales growth was the weakest in six quarters,” Garrett Nelson, senior equity analyst at CFRA Research, wrote in a note. “We also think current quarter [earnings-per-share] guidance of $1.30-$1.40 may be considered a modest disappointment in light of bullish back-to-school spending expectations. We maintain a ‘hold’ [on Walmart stock] on concerns related to margin contraction from slowing same-store sales growth and rising cost pressures.”
Still, Walmart raised its full-year outlook. The company is expecting net sales to increase 6 to 7 percent for the year, or by more than $30 billion, with earnings per share to be in the range of $6.20 to $6.35. The retailer is also anticipating sales in its international division will decline by about 21.5 percent and 22.5 percent in constant currency.
“Stores continued to validate Walmart’s ongoing investments as they were the key driver of the $1 billion increase in U.S. operating income on $5 billion in increased revenue, which is particularly impressive given the strength in its lower margin grocery-equivalent business that continues to grow share despite its massive scale,” said Charlie O’Shea, Moody’s vice president. “The meaningful upping of guidance for Q3 confirms our view that Walmart will continue to run on all cylinders, leaning heavily on its stores as it remains one of the premier global retailers by any yardstick.”
The retailer ended the quarter with $39.5 billion in long-term debt and $22.8 billion in cash and cash equivalents.
Shares of Walmart, which closed down 5 cents to $150.70, are up more than 11 percent year-over-year.
Walmart is also requiring all U.S. teams above store and club level to be fully vaccinated by Oct. 4.
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