Walmart quarterly net income down 39%, revenue up 2.4%

Walmart reported second-quarter net income of $4.276 billion or $1.52 per share for the period ending July 31. While net income was down 39% year-over-year, the retail giant beat the consensus estimates of $1.57 per share, excluding a 26-cent loss adjustment in the quarter.

Earnings-per-share were adjusted downward from $1.78 share from ongoing equity investments.

Revenue was $141.048 billion in the fiscal quarter, up 2.4% compared to $137.742 billion a year ago. Revenue was also higher than analysts expected in part because of a 28% increase in membership income from Sam’s Club and triple-digit growth in Walmart Connect, the new advertising platform service.

Walmart’s U.S. comp sales grew 5.2%, beating estimates of 4.3% with e-commerce contributing 2% of that total. The retailer said store traffic was up 6.1% in the quarter while average ticket was down 0.8%. On a two-year stack, comp sales were up 14.5%, led by traffic increase of 6.1%.

U.S. comp sales benefited from grocery and back-to-school demand that Walmart said continues through August. E-commerce sales grew 6% from a year ago and 103% on a two-year stack. While store shelves remain sparse at times in many locations, Walmart said inventory was up 20% year-over-year. Gross margin was down to 24.8%, lower than the consensus estimate of 25.2%.

Walmart said it gained market share in grocery in the quarter with stores selling record levels of produce and fresh foods. Walmart U.S. had net sales of $98.2 billion, up 5.3% from a year ago. Operating income totaled $6.1 billion, up 20% year-over-year.

“We had another strong quarter in every part of our business. Our global eCommerce sales are on track to reach $75 billion by the end of the year, further strengthening our position as a leader in omnichannel,” Walmart CEO Doug McMillon said in his opening remarks Monday during the call with analysts.

He said the company added thousands of new sellers to its online marketplace, rapidly grew advertising businesses around the world and is finding innovative new ways to commercialize its data and build technology.

“We have a unique ecosystem of produce and services designed to serve customers in broader, deeper ways, and we are grateful to our associates for making it all happen,” McMillon said.

Walmart also raised its outlook for U.S. comp sales to range between 5% to 6% for the year ahead of what is expected to be a strong holiday season.

Sam’s Club was the shining star in the quarter with net sales of $18.6 billion, up 13.9% year-over-year. Comp sales without fuel were up 7.7%, up 21% on a two-year stack basis. Transactions rose 5.1% while tickets increased 2.5% in the quarter. E-commerce contributed 1.8% to the overall comp sales number in the period. Operating income rose 11.5% to $700 million in the quarter.

McMillon said Sam’s Club has great momentum, as much as he has ever seen in the past 19 years since he began his role as a Sam’s Club buyer. He said Sam’s continues to be an innovation engine for Walmart with the “Ask Sam” technology recently rolled out in supercenters to help employees better serve customers.

Walmart’s international division had total sales of $23 billion, down 15% from a year ago mostly related to $8.9 billion in divestitures. Operating income totaled $900 million, up 6% in the period. McMillon said much of the world outside the U.S. continues to struggle with COVID-related challenges and Walmart is performing well under those circumstances.

McMillon told analysts Walmart would continue to invest in its employees, technology and supply chain and the investments don’t have to be at the expense of profits. He said Walmart is more than just a retailer buying and selling goods as there many other income levers it can pull with its growing services businesses.

Ben Bienvenu, an analyst with Stephens Inc., expected Wall Street to question Walmart on the timing of its equity investments that compressed gross margins and the slowing e-commerce sales results in the quarter.

“But these are very solid results and we think this team is continuing to make solid progress on delivering earnings growth and creating shareholder value. We reiterate our Overweight – buy rating and the price target of $170 is under review,” Bienvenu said following the earnings announcement.

Shares of Walmart (NYSE: WMT) opened higher on Monday trading at $151.54, up 79 cents in the early morning session. Year-to-date shares are up 4.5%. Over the past 52 weeks shares have traded between $153.66 and $126.28.