Walmart surprises with 53.3% net income gain, revenue up almost 6%

Food and advertising sales helped propel fiscal second-quarter revenue up 5.7% at Walmart and also contributed to better-than-expected net income gains of 53.3% before one-time charges. The Bentonville retailer reported earnings before the markets opened Thursday (Aug. 17).

Walmart’s adjusted earnings per share of $1.84 were up 3.95% from a year ago and 13 cents better than the consensus estimate. Total revenue was $161.632 billion in the quarter ending July 31, with sales growing in all three of the company’s core segments.

Net income before one-time charges totaled $7.891 billion, compared to $5.149 billion a year ago. The retailer expanded its gross margin thanks to lower supply chain expenses and improved inventory levels compared to the excesses that resulted in markdowns last year.

For the first half of fiscal 2024, Walmart’s sales revenue totaled $294.428 billion, up 6.6% from a year ago and ahead of the retailer’s own expectations. Operating income increased 11.4% behind strong results in Walmart U.S., Sam’s Club and several international markets like Mexico, China and India.

With the stronger-than-expected first half, Walmart also raised its guidance for the next two quarters with revenue growth between 4% and 4.5%, operating income increases between 7% and 7.5%, and modest earnings growth between 1% and 2.5% on an adjusted basis for the fiscal year.

“We had another strong quarter. Around the world, our customers and members are prioritizing value and convenience. They’re shopping with us across channels — in stores, Sam’s Clubs, and they’re driving eCommerce, which was up 24% globally. Food is a strength, but we’re also encouraged by our results in general merchandise versus our expectations when we started the quarter,” Walmart CEO Doug McMillon noted in the earnings report.

Factors behind the strong results included 35% growth in Walmart’s global advertising business, with 36% U.S. growth that has doubled in the past two years. Walmart said the business also saw a 60% increase in the number of advertisers. Sam’s Club reported a 30% uptick in advertising revenue in the quarter compared to a year ago.

WALMART U.S.
Walmart U.S. reported total sales revenue of $105.1 billion, up 5.4%, with traffic up 2.9% and average ticket increases of 3.4%, well ahead of expectations. Walmart U.S. reported comp-store sales of 6.4%, much better than the 4.1% consensus. The retailer said food and health and wellness sales were higher behind more cautious shopping and the increased demand for new weight-loss drugs sold at pharmacies.

Online sales added 1% to the overall comp as Walmart said its pickup and delivery business and expansion of marketplace fueled e-commerce growth of 24% in the quarter. The segment was also helped by 8% lower inventory levels and higher in-stock levels.

Walmart said food and grocery sales are strong across all income cohorts, while some general merchandise categories continue to see modest sales declines. The exceptions were items on rollback for the back-to-school season and kitchen appliances like blenders and mixers with more consumers are baking at home.

“We are seeing a strong back-to-school season so far, and that tends to bode well for the holiday. Customers are celebrating again and we expect a big holiday season. Our third-party assortment is driving more sales in general merchandise and among higher-income households. Our value proposition is resonating with customers, and convenience is selling well, too,” Walmart U.S. CEO John Furner said.

SAM’S CLUB
Sam’s Club posted sales revenue of $18 billion, excluding fuel, up 5.3% from a year ago. Comp sales grew 5.5%, with a 2.9% increase in transactions and a 2.5% uptick in average ticket. E-commerce continues to be a big part of Sam’s success, with curbside pickup growth of 18% in the quarter. The retailer said e-commerce contributed 1.5% of the overall comp sales growth in the quarter.

Membership count increased in the quarter and helped push membership income up 7%. The business also reported market share gains in grocery and general merchandise, including home, apparel and toys.

Sam’s CEO Kath McLay said Sam’s merchants continue to work with suppliers to reduce prices as supply chain costs have moderated over the past year. McLay will be taking over as CEO of Walmart International on Sept. 11, and outgoing International CEO Judith McKenna steps into a transitional role pending her retirement at year-end.

WALMART INTERNATIONAL
The International business reported revenue gains of 13.3% in the second quarter, with revenue totaling $27.6 billion. The diverse segment saw strong results from Mexico, China and India, with overall e-Commerce growth up 26%, led by in-store fulfillment. Operating income rose 14% to $1.2 billion in the quarter.

McKenna is credited with growing the diverse business unit over the past five years despite the divestitures in Japan, Argentina and in the United Kingdom.

Walmart also is celebrating the 65th anniversary of Bodega Aurrera stores in Mexico and strong results from China that continues to reopen for business. McKenna and McMillion are bullish on the contributions from FlipKart and PhonePe in India that continue to grow and open new possibilities for other markets in the areas of mobile payment and advertising. The advertising business across international rose by nearly 40%.

ANALYST RESPONSE
Analysts were pleased overall with Walmart’s better-than-expected quarterly results and higher full-year guidance.

“The guidance increase points to continued momentum, yet we suspect it reflects the company’s continued conservative posturing on expectations,” said Ben Bienvenu, an analyst with Stephens Inc.

Stephens rates Walmart shares a ‘buy’ and said its target price is under review.

Stifel analyst Mark Astrachan said Walmart is leveraging solid sales growth, and he also affirmed his “buy” rating. Gina Sanchez of Lido Advisors said Walmart is not just a story of the U.S. consumer but also a story about investment into e-commerce and digital infrastructure that is starting to pay off with better margins. She said Walmart is also a retailer that benefits from a mild economic slowdown.

Walmart shares (NYSE: WMT) were trading lower in the Thursday morning session. Over the past 52 weeks, the share price has ranged between $162.78 to $128.07. Year to date, the share price is up around 11%.