Inflation helped drive top-line sales growth

BENTONVILLE, Ark. — Walmart reported stronger than expected second quarter sales and earnings on Tuesday, and revised its full-year earnings outlook.

The company said it delivered strong top-line growth globally, partially driven by inflation. Total revenue was $152.9 billion, up 8.4%, or 9.1% in constant currency. Comp sales for  Walmart U.S. grew 6.5%, and 11.7% on a two-year stack, and eCommerce growth was 12% and 18% on a two-year stack.

Walmart added that it continued to gain market share in grocery.

“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,” Walmart president and CEO Doug McMillon said. “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.”

Other highlights from Walmart’s quarterly results:

• Sam’s Club comp 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 comps 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 LIFO charge 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.
• GAAP and Adjusted EPS include a $0.05 impact from the Walmart Chile insurance settlement discussed above, as well as a $0.05 impact from a dividend related to the company’s equity investment in JD.com.

Walmart also adjusted its guidance upward, just three weeks after shaking up the market for retail stocks by revising it downward.

The company said its guidance assumes a generally stable consumer in the U.S., continued pressure from inflation and mix of products and formats globally. For the third quarter the retailer is projecting consolidated net sales growth of about 5%, and Walmart U.S. comp sales growth, excluding fuel, of about 3.0%. Adjusted earnings per share for the quarter is projected to decline by 9.0% to 11.0%.

Walmart has updated its guidance for the fiscal year to reflect second-quarter performance and maintains its outlook for the back-half of the year. Consolidated net sales growth is expected to be about 4.5%. Excluding divestitures , consolidated net sales growth is expected to be about 5.5%. The company maintains its expectations for Walmart U.S. comp sales growth, excluding fuel, of about 3% in the second half of the year. For the full year, the company expects Walmart U.S. comp sales growth, excluding fuel, of about 4%. Consolidated adjusted operating income is expected to decline 9.0% to 11.0%, which is an improvement from the company’s prior guidance of a decline of 11.0% to 13.0%. Walmart said the revised numbers reflects better performance in the second quarter. Adjusted earnings per share are now expected to decline 9.0% to 11.0%, the company said. Excluding divestitures, adjusted earnings per share is expected to decline 8.0% to 10.0%.