Walmart reported beter than expected second quarter results partially driven by inflation
Walmart reported second quarter financial results in FY23 and delivered strong top-line growth globally, partially driven by inflation.
Total revenue was $152.9 billion, up 8.4% compared to the same period of last year.
Walmart domestic sales grew 6.5% and 11.7% on a twoyear stack while eCommerce growth was 12% and 18% on a two-year stack. The companny continued to gain market share in grocery segment.
• Sam’s Club sales increased 9.5%, and 17.2% on a two-year stack. Membership income increased 8.9% with member count at an all-time high.
• Walmart International net sales were $24.4 billion, an increase of $1.3 billion, or 5.7%, negatively affected by $1.0 billion from currency fluctuations. Double-digit in three largest markets of Mexico, Canada, and China.
• Global advertising business grew nearly 30%, led by Walmart Connect in the U.S. and Flipkart advertising.
• Consolidated gross profit rate declined 132 basis points, primarily due to markdowns and mix of sales in the U.S., and an inflation-related charges at Sam’s Club.
• Consolidated operating expenses as a percentage of net sales decreased 45 basis points, primarily due to strong sales growth partially offset by wage investments.
• Consolidated operating income was $6.9 billion, a decrease of 6.8%, positively affected by $173 million from an insurance settlement for Walmart Chile.
• Walmart’s net income rose to $5.15 billion, or $1.88 per share, compared with $4.28 billion, or $1.52 per share a year earlier.
• Adjusted EPS include a $0.05 impact from the Walmart Chile insurance settlement, as well as a $0.05 impact from a dividend related to the Company’s equity investment in JD.com.
“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. 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. We made good progress throughout the quarter operationally to improve costs in our supply chain, and that work is ongoing. We continue to build on our strategy to expand our digital businesses, including the continued strength we see in our international markets.” Doug McMillon President and CEO, Walmart.
Third quarter and Fiscal Year 2023 guidance
• Consolidated net sales growth of about 5%, negatively affected by approximately $1.3 billion from currency fluctuations.
• Walmart U.S. sales of about 3.0%.
• Consolidated operating income decline of 8.0% to 10.0%.
• Adjusted earnings per share decline of 9.0% to 11.0%.
Fiscal Year 2023
• Consolidated net sales growth is expected to be about 4.5%. Excluding divestitures, consolidated net sales growth is expected to be about 5.5%. Based on current exchange rates, the company expects a headwind of about $2.1 billion in the second half of the year.
• The company maintains its expectations for Walmart U.S. comp sales growth of about 3% in the second half of the year. For the full year, the company expects Walmart U.S. comp sales growth of about 4%.
• Consolidated adjusted operating income is expected to decline 9.0% to 11.0%, which improved from the company’s prior guidance of a decline of 11.0% to 13.0% and reflects better performance in the second quarter.
• Adjusted earnings per share are expected to decline 9.0% to 11.0%.
The above-expectations financial results are the result of strong demand for groceries and their rising prices, which Americans continue to accept.
What is noteworthy is that sales of groceries are relatively less profitable for the company compared to household appliances or apparel.
Other sectors have seen sales decline, causing WalMart to be forced to cut back in order to stimulate demand for goods. Weaker demand for the most profitable commodities like electronics and apparel, and policies that need to reduce inventory, according to the company, are the most dragging factors on the decline in operating profit.
The company is improving its supply chains and logistics; it reported, among other things, the cancellation of millions of orders and strong sales of summer collections, as well as school supplies that are likely to affect profitability in the third quarter of the year.
Although inventories were up more than 25% from Q2 2021, growth improved from the previous quarter, management believes the company’s peak is behind it.
The company’s report indicates that Americans are reluctantly refusing to reduce spending on food, but rising inflation has caused a sharp decline in demand for other goods.
The condition of American consumers, however, appears to remain strong, confirming the Fed’s narratives of a strong labor market, wage pressures and a still distant recession (albeit each with a different course).