Walmart hits all time highs following earnings; Is this good or bad for retail?
AInvestThursday, Aug 15, 2024 8:20 am ET
2min read
WMT --

Walmart (WMT) delivered a strong Q2 earnings report, beating analyst expectations on both revenue and earnings per share (EPS). The company reported revenue of $169.34 billion, representing a 4.8% year-over-year increase, surpassing the consensus estimate of $168.46 billion. Adjusted EPS came in at $0.67, which was also above the estimated $0.65. This performance was driven by solid comparable sales growth in both its domestic and international operations, as well as a strong showing from its eCommerce and advertising businesses.

In terms of comparable sales, Walmart's U.S. stores posted a 4.2% increase excluding gas, beating the expected 3.43% growth. Sam’s Club outperformed with a 5.2% increase in comparable sales ex-gas, also ahead of the 3.9% estimate. The growth was fueled by strong transaction counts and unit volumes, particularly in the eCommerce channel, which saw a 22% increase in Sam's Club and a 21% increase globally. This reflects Walmart's ongoing strength in leveraging its physical stores for online order fulfillment, a key competitive advantage in the retail landscape.

Internationally, Walmart also delivered solid performance, with comparable sales showing balanced growth across its markets. The company reported an 18% increase in international eCommerce sales, with notable contributions from store-fulfilled pickup and delivery services. The international segment also benefited from higher margins in eCommerce and growth in higher-margin businesses, leading to a 15.7% increase in operating income on a constant currency basis.

Guidance for the remainder of the year was cautiously optimistic, though slightly below market expectations. For Q3, Walmart guided adjusted EPS in the range of $0.51 to $0.52, which is below the consensus estimate of $0.55. For the full year FY25, Walmart now expects adjusted EPS to be between $2.35 and $2.43, slightly below the estimated $2.45. However, the company raised its net sales growth guidance to 3.75% to 4.75% from the previous 3.0% to 4.0%, reflecting confidence in continued strong consumer demand.

Walmart's commentary on the consumer highlighted resilience, particularly among higher-income households, who have increasingly turned to Walmart for its value proposition. The company's ability to drive growth across income cohorts, especially in its core segments of food and consumables, underscores its positioning as a leader in both affordability and convenience. This trend is further supported by the strong performance in membership income at Sam’s Club and growth in Walmart's advertising business, which saw a 30% increase in the U.S.

The commentary will spark debates between bulls and bears on whether this is a positive or negative for the consumer. Bulls will point to the strong results and say that the consumer remains in great shape. Bears will point to the need for investors to "trade down". Luckily, we will receive more data in the form of retail sales at 8:30 am ET and additional earnings from retailers over the next two weeks.

The company's gross margin improvement, driven by higher margins in both its U.S. and international segments, also reflects effective cost management and a strategic focus on higher-margin categories. Inventory levels were down 2.6% in the U.S., indicating healthy stock management, while maintaining strong in-stock levels to meet consumer demand. These factors contributed to an 8.5% increase in consolidated operating income, with adjusted operating income up 7.2%, slightly above analyst expectations.

In summary, Walmart's Q2 performance was marked by strong revenue and EPS growth, with notable outperformance in U.S. comparable sales and eCommerce. While guidance for the upcoming quarter and full year was slightly below expectations, the company's strategic initiatives in digital transformation, margin expansion, and consumer engagement suggest that it remains well-positioned for continued growth. The positive momentum in its core businesses, coupled with effective cost management, provides a solid foundation as Walmart navigates a dynamic retail environment.

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