Walmart (WMT +6.5%) saw a notable increase in its stock price after reporting its Q2 (Jul) results. The retail giant exceeded expectations for both EPS and revenue, although the upside was smaller than usual. Despite issuing downside EPS guidance for Q3 (Oct) and providing in-line revenue guidance with a slightly light mid-point, Walmart raised its FY25 EPS and revenue guidance, indicating higher confidence about Q4 (Jan) performance.
Key Highlights:
- Q2 sales, operating income, and EPS all surpassed prior guidance. During the earnings call, Walmart stated that it has not observed a weaker consumer overall. In the US, both Walmart and Sam's Club experienced consistent comp sales throughout the quarter. Food sales remained strong, and there were improvements in general merchandise. Additionally, the US Health and Wellness business saw strong comps due to sales of GLP-1 drugs.
- Walmart US segment performed well with comps (excluding fuel) up +4.2%, an improvement from +3.8% in Q1. This strong comp is a key reason for the stock's rise. Despite earlier cautious comments from Walmart, investors are pleased with the comp performance.
- Comp sales showed strength in transaction counts and unit volumes across both stores and eCommerce channels. Walmart's value-convenience proposition continues to attract customers and members, with share gains across income cohorts, especially upper-income households. Walmart Connect advertising sales grew by 30% due to strong growth in advertiser counts, including marketplace sellers.
- Sam's Club US comps (excluding fuel) had been trending lower in recent quarters but rebounded to +4.4% in Q1 and +5.2% in Q2. Comps were driven by food, health & wellness, and increases in transactions and unit volumes. Sam's Club also gained market share in grocery and general merchandise categories, including apparel and electronics. eCommerce sales grew by 22%.
- Walmart International segment saw sales grow to $29.6 billion, an 8.3% increase in constant currency, with strength in Walmex, China, and Flipkart. Food and consumables performed well, and there was an improvement in general merchandise. eCommerce sales were up 18%, and the advertising business grew by 23%, led by Flipkart and Walmex.
- Consumers continue to seek value to maximize their budgets while enjoying seasonal celebrations. Upper-income households accounted for most gains, but Walmart also grew sales and share among middle and lower-income households. The company is encouraged by customer uptake of its new private label food brand (bettergoods) and the re-launch of its young adult fashion brand (No Boundaries).
Overall, the Q2 performance was modest, but investors are optimistic because it was better than expected given the July jobs data and Walmart's cautious comments in June. The strong Walmart US comp, despite lapping a strong result last year, is a highlight. Walmart's higher exposure to groceries and everyday necessities is advantageous, with 60% of Walmart US sales in FY24 being groceries compared to 26% in general merchandise. In contrast, Target has only 23% of its sales in Food & Beverage. Walmart also appeared more bullish on the general merchandise side of the business than in previous calls.
