Walmart Inc. smashed Wall Street’s second quarter consensus estimates as the company benefited from federal government stimulus and consumers flocked to the discounter for back-to-school items, flush with cash from the Child Tax Credit program. And with a strong first-half under its belt, the retail giant raised its annual U.S. same-store sales estimate and believes annual global e-commerce sales could top $75 billion this year.
In a Nutshell: During a Tuesday morning conference call, president and CEO Doug McMillon told Wall Street analysts that the recent quarters have shown that the discounter’s focus on a “better omni-channel strategy is the right one, as we serve customers regardless of how they want to shop.” Walmart will continue innovating and executing to improve in-store, pick-up and delivery services, both to gain share and serve global high-growth markets, he said.
“I’m confident in the fundamental strength of our business, even as we navigate the benefits from economic stimulus in the U.S. for both this year and last year,” McMillon said. “We’ve proven our ability to serve customers in challenging environments and across multiple channels formats, and countries. The phrase ‘serving the customer’ has traditionally meant one thing at Walmart, but today it includes serving marketplace sellers, our advertising partners, and those that want to use our fulfillment services or proprietary software.”
While Walmart is still focused on selling merchandise, it is also growing other non-core businesses.
“In our advertising business in the U.S., Walmart Connect nearly doubled during the quarter versus last year, with active advertisers of more than 170 percent. And this isn’t confined to the U.S.,” McMillon said, noting ad growth in Mexico, India, Canada and Chile.
Walmart’s marketplace fulfillment services continues to scale as well, with a 150 basis point, sequential improvement in GMV, measured as a percentage of marketplace GMV. “We’re on track to hit full-year double digit GMV penetration by year end. We also announced during the quarter that we will serve other businesses through certain in-house technologies used for pickup and delivery. Our partnership with Adobe is an example of that,” McMillon said, highlighting “new streams of revenue and profit.”
Changing customer behavior drove consumers back to stores during the quarter, scaling back the months-long trend toward online shopping. The retailer generated nearly triple-digit growth and advertising sales through Walmart Connect, adding thousands of new sellers on its e-commerce marketplace during the quarter.
“Earlier this year we announced a step up in Capex spending with heavy emphasis on supply chain in the coming years. This will mean additional capacity and automation from our largest fulfillment centers to our stores. These investments are aimed at increasing assortment to broaden our appeal with customers and get product positioned and picked efficiently to deliver it faster. These investments will increase capacity, help support the growth of Walmart Plus and improve productivity from our merchandising point of view,” McMillon said, referring to the subscription membership service the retailer launched last year.
Walmart has been strengthening its omnichannel approach in China, Canada and Mexico, the latter of which launched a membership program, finished rolling out scan-and-go at all Sam’s clubs and added new sellers to the marketplace, growing online SKU counts 30 percent. In China, e-commerce growth reached 75 percent.
McMillon said Walmart’s e-commerce marketplace presence in India via Flipkart “continues to drive strong growth in GMV in line with our high expectations.” The team introduced Flipkart camera, a “first-of-its-kind technology at scale for the Indian customer that allows users to view products in their physical environment,” he added. Flipkart’s grocery business expanded to over 70 cities and increased customer stickiness with Flipkart Plus, a tiered program driving higher repeat rates.
Flipkart’s recent funding round “placed a value on the business of about $38 billion, significantly higher than the valuation when we invested just three years ago,” McMillon added. “There were large votes of confidence from a group of investors, and we’ll put those dollars to work to deliver growth and key assets, such as grocery, fashion, and our supply chain.”
Meanwhile, “comp sales increased each month through the quarter, and we’re off to a good start with the back to school season,” said chief financial officer Brett Biggs, citing strong sales trends led by grocery, health and wellness, and apparel.
On a more macro-economic level, “We’re continuing to see a bit more cost inflation than normal, but our merchants are working with suppliers and monitoring price gaps to keep prices low while managing margins,” he added.
Like its retail peers, Walmart is keeping close tabs on supply-chain and shipping delays, with merchants taking steps to “mitigate challenges, including adding extra lead time to orders, and chartering vessels” to avoid out-of-stocks in the critical third and fourth quarters, Biggs said, following Home Depot‘s example earlier this year.
John Furner, president and CEO of Walmart U.S., said merchants have a “lot of levers that they can use all across the business to make sure values are right for customers,” while making sure that Walmart’s “price value is as strong as it has been throughout the pandemic and above what it was before the pandemic being began.”
Walmart U.S. finished the quarter up about 20 percent in inventory, which Furner said should keep levels “well-positioned going into the rest of the year.” Merchants are positioning Walmart “in terms of retail value for the customer and play[ing] a role in keeping inflation down for the country.”
Those efforts seem to have helped Walmart buck the trend challenging some retail rivals. On Tuesday, the U.S. Census Bureau said overall retail sales in July dipped 1.1 percent, seasonally adjusted from June. The National Retail Federation attributed the slower July sales numbers to supply chain disruptions and vaccinated consumers prioritizing travel and dining out versus spending on clothing and other goods.
Net Sales: Total revenue for the quarter ended July 31 rose 2.4 percent to $141.0 billion, negatively impacted by $8.9 billion related to divestitures. Included in the revenue report was a 2.2 percent increase in net sales to $139.9 billion.
By division, Walmart U.S. second quarter net sales rose 5.3 percent to $98.2 billion. Comparable sales for stores open at least one year, excluding fuel, rose 5.2 percent and were up 14.5 percent on a two-year stacked basis. Comparable transactions were up 6.1 percent. Sales for general merchandise categories were strong in apparel and travel-related categories “as customers increase socialization,” Walmart said, adding that it also saw a “solid start in Back-to-School categories.” Walmart U.S. e-commerce sales rose 6 percent and were up 103 percent on a two-year stacked basis. During the quarter, the company remodeled 187 stores, included the pickup option in 3,900 locations and offered same-day delivery at 3,250 stores.
Net sales in the quarter for Sam’s Club was up 13.9 percent to $18.6 billion, and were up 7.7 percent to $16.4 billion, excluding fuel. Comparable sales, excluding fuel, rose 7.7 percent, while e-commerce net sales rose 27 percent. The company said membership income increased 12.2 percent, with member count reaching an all-time high. The company cited strong sales in the low-double digits for apparel, jewelry and furniture.
Walmart International sales fell 4.1 percent to $23.0 billion, negatively impacted by $8.9 billion related to divestitures. Walmex net sales growth were up 6.7 percent, with comparable sales gaining 5.4 percent. The Walmex business saw growth in apparel and general merchandise items. Net sales growth for its Walmart China business was rose 6.0 percent, with comparable sales up 2.9 percent. Strong sales in Sam’s Club were partially offset by softer traffic in Hypermarkets. At Walmart Canada, net sales rose 3.7 percent on a comparable sales gain of 3.6 percent. Sales of general merchandise were limited by Covid-related restrictions on nonessential categories, but on a two-year stacked basis, comparable sales were up 10.4 percent. E-commerce sales rose 41 percent in the quarter.
Earnings: The company said diluted earnings per share (EPS) was $1.52 for the quarter ended July 31, and that adjusted EPS was $1.78.
Wall Street was expecting adjusted earnings per share of $1.56 on revenue of $136.88 billion.
The company raised its outlook for the second consecutive quarter. It now expects comparable sales for Walmart U.S. for Fiscal Year 2022 in the range of five percent to six percent, up from guidance of up low single-digits on May 18 when the company reported first quarter results. Walmart also guided diluted EPS for the year to between $6.20 to $6.35.
For the third quarter, the company forecasted comparable sales growth for Walmart U.S. at up 6 percent to 7 percent, with diluted EPS estimate at $1.30 to $1.40.
The company’s guidance presumes a continued strong U.S. economy, with no new significant government stimulus for the remainder of the year, Biggs said during the call.
“We now anticipate higher full year sales growth due to the strong first half performance, and an expected good back half of the year,” he said, adding that the expected e-commerce sales growth of 5 percent to 6 percent will represent “about $20 billion of growth.” Sam’s Club comps are expected to increase 7.5 to 8.5 percent, excluding fuel, while international, on a constant currency basis, could see sales grow 7 percent to 8 percent, Biggs said.
“While U.S. online growth of 6 percent is optically modest, we note this follows Q2 2020’s online growth that roughly doubled, and Walmart’s forecast of $75 billion worldwide for 2021 represents continued momentum,” said Charlie O’Shea, retail analyst at credit ratings firm Moody’s Investors Service. “The meaningful upping of guidance for Q3 confirms our view that Walmart will continue to run on all cylinders, leaning heavily on its stores as it remains one of the premier global retailers by any yardstick.”
For the six months, diluted EPS was $2.48.
CEO’s Take: “We had another strong quarter in every part of our business. Our global e-commerce sales are on track to reach $75 billion by the end of the year, further strengthening our position as a leader in omnichannel. We grew marketshare in U.S. grocery, added thousands of new sellers to our marketplace, rapidly grew advertising businesses around the world, and we’re finding innovative ways to commercialize our data and build technology,” McMillon said.