Walmart Grows Revenues and Profits Thanks to Stronger Mix of Groceries
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Consumers continue to flock to Walmart during inflationary times.
The mass-channel merchant revealed quarterly earnings Tuesday before the market opened, improving on both top and bottom lines thanks to a stronger mix of grocery. Still, Walmart updated its guidance as a result of the most recent quarter and is now expecting a $2.1 billion headwind in the back half as a result of currency exchange rates. But investors seemed satisfied with the results. Shares of Walmart closed up 5.11 percent Tuesday to $139.37 apiece.
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“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,” Doug McMillon, president and chief executive officer of Walmart, said in a statement. “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 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 business, including the continued strength we see in our international markets.”
Courtesy Photo Walmart Wesley Hitt
The Bentonville, Arkansas-based firm’s total revenues during the latest three-month period grew 8.4 percent to nearly $153 billion, up from $141 billion a year ago. Walmart U.S. comp sales grew 6.5 percent, year-over-year, while e-commerce sales rose 12 percent during the same time period.
Comp sales at Sam’s Club were up 9.5 percent during the quarter, year-over-year, with membership income rising 8.9 percent. Walmart said member count was also at an all-time high.
Globally, Walmart International net sales grew $1.3 billion, or 5.7 percent, for the quarter to $24.4 billion, negatively impacted by about $1 billion from currency fluctuations. Walmart’s three largest international markets — China, Mexico and Canada — had double-digit comp growth during the quarter. Digital businesses in those three markets grew 152 percent, 31 percent and 32 percent, year-over-year, respectively.
“We see this growth even as customers choose to do more in-person shopping,” McMillon told analysts on Tuesday’s morning’s conference call. “It really shows the power of operating across multiple channels.
“While inflation remains high, most of our markets are growing comps ahead of inflation,” the CEO added, but also acknowledged that rising prices will likely “continue to influence the choices that families make.”
In the most recent quarter that included stronger food sales (with growth in the mid-teens), and falling revenues in the apparel, electronic and home categories.
The results echoed the last month’s price warning, where Walmart said consumers are increasingly spending on food and other necessities in the face of rising prices and less so on apparel and other discretionary items.
Courtesy Photo
Even so, consolidated net income for the quarter was still $5.1 billion, up from $4.3 billion a year ago.
Cowen & Co reiterated its “outperform” rating on Walmart’s stock, setting a $150 price target.
“Walmart delivers value across categories [and] progresses as an ecosystem,” Oliver Chen, managing director and senior equity analyst at the investment firm, wrote in a note. “More middle- and higher-income consumers are trading to Walmart and private brand penetration has inflected higher. Positive drivers [include] strong sales at [the] end of July, grocery share gains, gas prices coming down and back-to-school shopping.”
Walmart updated its forward-looking outlook on Tuesday as well. For the current quarter, the retailer is now expecting consolidated net sales to grow roughly 5 percent, negatively affected by about $1.3 billion in currency fluctuations, while Walmart U.S. comp sales, excluding fuel, are anticipated to rise about 3 percent, year-over-year. The company anticipates adjusted earnings per share will decline between 9 percent and 11 percent.
“What you should take away from Q3 and Q4 guidance is that we’re expecting the environment to look a lot like Q2,” McMillon said on the call.
For the full fiscal 2023 year, Walmart anticipates consolidated net sales will rise about 4.5 percent for the year, with a $2.1 billion headwind in the back half, thanks to currency exchange rates. The company also continues to expect Walmart U.S. comp sales, excluding fuel, will rise about 3 percent in the back half of the year, or 4 percent for the full year. Adjusted earnings per share are expected to fall between 9 percent and 11 percent for the full year.
Too much inventory in categories such as apparel, home and electronics meant more markdowns during the most recent quarter. John David Rainey, executive vice president and chief financial officer, said on the call that Walmart is working through the issue. Still, he said there’s about $1.5 billion of inventory “that if we can just wave a magic wand, we’d make go away today.”
“General merchandise inventory growth rates are down more than 15 percentage points from Q1, but we still have more work to do,” Rainey said. “We’ve cleared most summer seasonal inventory, but we are still focused on reducing exposure to other areas, such as electronics, home and sporting goods. We’ve also canceled billions of dollars in orders to help align inventory levels with expected demand. We estimate that only about 15 percent of our total inventory growth in Q2 is still above optimal levels and our actions in Q3 will allow us to make significant progress toward rationalizing absolute levels and mix, which will enable our stores to be well positioned ahead of the holiday season.”
Still, McMillon said rising prices and market uncertainty might actually provide a bit of a tailwind for the discount retailer.
“I think this inflationary environment is going to last for a while,” he said on the call. “So people are going to be value conscious, which plays to our strengths.”
Earlier this month, Walmart laid off approximately 200 corporate employees, sparking concerns that a recession was on the horizon. Recession fears were quickly downplayed, however, as critics pointed out a still-low unemployment rate. Walmart, meanwhile, said the job cuts were not meant to curb costs, but rather update the workforce in key areas.
“We’re updating our structure and evolving select roles to provide clarity and better position the company for a strong future,” Jimmy Carter, a Walmart spokesperson, told WWD. “At the same time, we’re further investing in key areas like e-commerce, technology, health and wellness, supply chain and advertising sales and creating new roles to support our growing number of services for our customers, suppliers and the business community.”
Walmart also recently acquired Volt Systems, a technology platform that helps companies and brands enhance the omnichannel experience.
The company ended the quarter with $13.9 billion in cash and cash equivalents and $29.8 billion in long-term debt.
Walmart’s stock is down 7.5 percent, year-over-year.
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