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Walmart checkout-associate helps customer.jpg Walmart
Walmart reported continued grocery market share gains in the second quarter.

Walmart sees better Q2 results than expected

Net and comp sales, EPS top projections following company warning last month

After issuing an earnings warning nearly three weeks ago, Walmart turned in better-than-expected top- and bottom-line results and beat Wall Street’s forecast in its fiscal 2023 second quarter.

For the quarter ended July 29, overall revenue came in at $152.86 billion, up 8.4% from $141.05 billion a year earlier, driven in part by elevated inflation, Bentonville, Ark.-based Walmart said Tuesday. In constant currency, revenue rose 9.1% to $153.86 billion. That compared with a revenue uptick of 2.4% (0.6% in constant currency) in the fiscal 2022 quarter. Consolidated net sales climbed 8.2% to $151.38 billion.

Net sales at Walmart U.S. increased 7.1% to $105.13 billion in the second quarter from $98.19 billion a year ago. Comparable sales advanced 7.2% year over year and were up 6.5% excluding fuel, with growth of 11.7% on a two-year stack. Transaction count edged up 1%, while the average ticket size grew 5.5%, Walmart reported.

Walmart online grocery shopping-mobile.jpgOnline sales growth doubled in Q2 versus a year ago, for an 18% gain on a two-year stack, Walmart said. (Photo courtesy of Walmart)

In the fiscal 2022 second quarter, when Walmart cycled big sales gains fueled by the pandemic, Walmart U.S. net sales rose 5.3%, with comp sales up 5.6% (5.2% excluding fuel). Shoppers generated 6.1% more transactions, and the average basket shrank 0.8%.

Walmart’s July 25 financial alert had estimated growth of 7.5% for overall net sales and 6% for U.S. comp sales in Q2 2023.

Walmart U.S. e-commerce sales jumped 12% in the 2023 second quarter, contributing 100 basis points to total comp sales growth, and were up 18% on a two-year basis, the company said. In the prior-year period, e-commerce sales rose 6% and contributed 20 basis points to the comp sales gain.

Grocery market share continued to rise during the second quarter, as comp sales accelerated sequentially and were led by strength in food categories (positive mid-teens growth), strong private-brand sales, and higher average ticket, Walmart noted. Inflation partly drove strong sales in pet care and paper goods. The retail giant said it also saw a solid start for the back-to-school selling season.

“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,” President and CEO Doug McMillon 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.”

WalmartWalmart grocery shopper-produce.jpg

On a comparable basis, food sales were up by mid-teens in dollars but experienced slightly negative to flat unit volume exiting the quarter, according to Walmart.

At Sam’s Club, second-quarter net sales totaled $21.9 billion, up 17.5% from $18.64 billion in the year-agor period. Comp sales increased 17.5% overall and 9.5% without fuel. The number of transactions rose by 9.8%, while the average ticket dipped 0.2%. E-commerce sales surged 25% during the quarter, reflecting strong curbside pickup and direct-to-home sales, and contributed 170 basis points to comp-sales growth. Membership income grew 8.9%, with member count reaching an all-time high, Walmart reported.

In the prior-year quarter, Sam’s Club posted gains of 13.9% in net sales and 13.9% in comp sales (7.7% without fuel), with transactions up 5.1% and basket size up 2.5%. The warehouse club chain saw low-teens growth in fresh, frozen and refrigerated foods as well as in grocery and beverages and consumables. E-commerce sales rose 27% and contributed 180 basis points to comp-sales growth.

Combined U.S. comp sales for Walmart, including Walmart U.S. and Sam’s Club, increased 8.8% for the 2023 second quarter and were up 7% excluding fuel.

For Walmart International, fiscal 2023 second-quarter net sales increased 5.7% to $24.35 billion from $23.04 billion a year earlier. In constant currency, the business unit’s net sales climbed 9.9% to $25.31 billion. That compared with a net sales decrease of 15.2% (-24% in constant currency) in the 2022 quarter.

At the bottom line, Walmart recorded fiscal 2023 Q2 net income of $5.15 billion, or $1.88 per diluted share, compared with $4.28 billion, or $1.52 per diluted share, a year ago. Adjusted earnings per share (EPS) for the fiscal 2022 quarter were $1.77, well above the top end of Wall Street’s estimate, versus $1.78 a year earlier.

In its earnings alert last month, Walmart said it expected adjusted EPS to decrease 8% to 9% for the second quarter. Analysts, on average, had projected Walmart’s second-quarter adjusted EPS at $1.60, with estimates ranging from a low of $1.50 to a high of $1.64, according to Zacks Investment Research.

“We made good progress throughout the quarter operationally to improve costs in our supply chain, and that work is ongoing,” according to McMillon. “We continue to build on our strategy to expand our digital businesses, including the continued strength we see in our international market.”

Looking ahead, Walmart forecast fiscal 2023 consolidated net sales growth (constant currency) of 4.5% (5.5% excluding divestitures). That includes comp sales growth of 4% (excluding fuel) for Walmart U.S. The retailer reaffirmed comp-sales growth of 3% in the 2023 second half for Walmart U.S.

“Seeing second-half guidance still calling for moderation in comps from +6% to +3%, even after late Q2 improvement, implies that even with lower gas prices Walmart consumers are still navigating weekly trade-off and trade-down decisions,” Jefferies analyst Stephanie Wissink wrote in a research note on Tuesday. “We’re encouraged by share gains at Walmart U.S. and the persistence of comp strength at Sam’s Club.”

Walmart expects adjusted EPS to decline 9% to 11% (8% to 10% excluding divestitures) for fiscal 2023. Wall Street’s consensus estimate is for adjusted EPS of $5.68, with projections running from $5.58 to $5.77, according to Zacks.

As of July 29, Walmart had 10,585 stores worldwide, including 4,735 Walmart and 600 Sam’s Club stores in the United States and 5,250 international locations.

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