Walmart Inc. reported a better-than-expected second-quarter profit and raised its annual outlook as inflation-hit shoppers flocked to the company’s low-priced food, clothing and household goods.
Walmart shone thanks to its affordable prices: Same-store sales excluding fuel rose 4.2% in the second quarter from a year ago, beating expectations.
The company’s U.S. online sales jumped 22% and customers spent more than usual, with the number of transactions up 3.6% and average spend up 0.6% compared to the same period last year.
Sales at Walmart’s big-box retail chain, Sam’s Club, rose 5.2%, in line with expectations.
“Walmart’s performance has given consumers a sense of relief that everything is OK, but a lot of upper-income earners are switching to Walmart and people are trying to save money where they can,” Brian Yarbrough, an analyst at Edward Jones, told The Post.
Shares of the Arkansas-based retail giant surged 6.7% to a record high of $74.07 per share after the company reported strong earnings on Thursday.
Before the surge, the company’s shares had risen about 30% so far this year, outpacing the S&P 500’s 15% growth.
Walmart reported adjusted earnings per share of 67 cents, beating the 65 cents expected by LSEG analysts.
The retailer earned revenue of $169.34 billion, beating analysts’ estimates of $168.63 billion and up about 5% from the same period a year ago.
The Arkansas-based company raised its revenue forecast to 3.75% to 4.75% growth from 3% to 4%.
The company raised its earnings per share forecast from $2.23 to $2.37 to $2.35 to $2.43.
“The only places anyone shops right now are Amazon, Walmart and Costco,” said DA Davidson analyst Michael Baker. He told CNN.
Retailers have taken steps to meet the needs of cash-strapped customers, stepping up advertising and launching a low-cost grocery brand called BetterGoods that sells meals like chicken wings and frozen pizza for under $5.
Walmart is also benefiting from consumers looking for cheaper alternatives to fast food, an industry that has struggled to lure back customers shocked by prices.
McDonald’s, Burger King and other fast-food giants are racing to launch value meals to boost sluggish sales.
“It makes sense that customers are choosing to prepare meals at home rather than dining out,” said Walmart CFO John David Rainey. He told CNBC.
Analysts say Walmart’s prices are about 25% lower than traditional supermarkets.
About 60% of Walmart’s sales come from groceries, and the retail giant is taking market share from traditional supermarkets such as Kroger and Albertsons, according to CFRA analyst Arun Sundaram.
Sales of general merchandise such as lawn and garden supplies also rose slightly, the first increase in 11 quarters, which Mr. Rainey called “a positive sign.”
The CFO said Walmart has seen a positive shift in consumer sentiment over the past year.
Rainey said that despite data predicting that the back-to-school shopping season will be the most expensive ever, the months of the quarter were “relatively stable” and that the back-to-school season is “off to a pretty good start.”
“Our members and customers remain selective, discerning, value-seeking and focused on essentials over discretionary items, but importantly, their health is not being further compromised,” Rainey said.
Walmart’s profits increased due to increased sales, not price increases, he said.
Customers are turning to Walmart as price hikes at other grocery stores, restaurants and retailers strain their position.
A weak July jobs report showing a steep rise in unemployment added to the pain, sparking confusion and a massive sell-off in stocks.
But inflation is easing: U.S. inflation rose 2.9% year-on-year last month, slightly less than expected.
and Retail sales increased 1.0% in July. This was the biggest increase since January 2023 and followed a 0.2% decline in June.
But a new survey shows that three in five people believe the U.S. is in a recession, even though it isn’t currently in one.
Net income fell to $4.5 billion, or 56 cents a share, from $7.89 billion, or 97 cents a share, a year earlier.
While Walmart has grown rapidly, competitors such as Home Depot have slashed their sales forecasts.
The home improvement chain blamed weak second-quarter profits on high interest rates and concerns about a market crash.
Home Depot Chief Financial Officer Richard McPhail said: He told CNBC On Tuesday, it reported that consumers have adopted a “deferral mindset” since the middle of last year and are spending less on home improvement projects.
“They’re postponing it because of the perception that there’s increased economic uncertainty,” he said.
Retail analyst Hita Herzog said Walmart has been able to appeal to consumers by offering everyday items at particularly low prices.
“Why would you buy paper towels at Home Depot when Walmart can deliver them to your door for 25% less and in some cases for free? That’s what Walmart does,” Herzog, chief research officer at H-Squared Research and an adjunct lecturer at Parsons School of Design, told The Washington Post in a statement.
Home Depot shares are up 4.4%, while Walmart’s growth rate so far this year is 37.6%.
Yarbrough told The Washington Post that Walmart’s growth in categories such as home goods, clothing and electronics is coming at the expense of other companies such as Target, which has seen sales stagnate over the past few quarters.
Target shares have fallen 1.30% so far this year.
Walmart raised its full-year outlook but warned that second-half results may fall short of Wall Street expectations.
Walmart now expects third-quarter adjusted earnings of 51 cents to 52 cents a share, below the 54 cents expected by analysts, who are also at the high end of Walmart’s guidance.
Rainey said he did not raise his outlook for the second half of the year because there are several factors that could significantly impact markets this year, including the 2024 U.S. presidential election and tensions in the Middle East.
“In this environment, it would be responsible, maybe even prudent, to be a little cautious about our outlook, but we’re not predicting a recession,” he told CNBC.
