US Markets
Thursday, August 15th, 2024 2:43 pm EDT
Key Points
- Walmart raised its full-year forecast after a strong second quarter, with revenue growing nearly 5% due to increased visits to its stores and website, as well as improved sales in non-grocery items.
- E-commerce and general merchandise sales showed significant growth, with online sales rising 21% globally and general merchandise sales increasing for the first time in 11 quarters, signaling consumer confidence in a recovering economy.
- Inflation moderated, but prices remain high, prompting Walmart to push for price reductions from vendors. Walmart’s flat inflation rate allowed it to drive sales through increased unit sales and promotions, including a significant rise in food-related rollbacks.
Walmart has raised its full-year forecast after a strong second-quarter performance, with revenue growing by nearly 5%. The company attributed this growth to increased store and website visits, along with a recovery in sales outside of the grocery department. Walmart beat Wall Street’s expectations for both sales and profits, causing its shares to rise by 6%. The company now projects sales to increase by 3.75% to 4.75% for the full year, with adjusted earnings expected to be between $2.35 and $2.43 per share, up from previous guidance.
However, Walmart’s outlook for the second half of the year is more cautious. The company forecasts third-quarter adjusted earnings of 51 to 52 cents per share, slightly below Wall Street’s expectations of 54 cents. Chief Financial Officer John David Rainey explained that while Walmart’s strong performance in the first half of the year prompted the upward revision, uncertainties like the 2024 election and geopolitical tensions in the Middle East could impact consumer sentiment. Despite this cautious approach, Rainey stated that the company is not projecting a recession and has observed no significant changes in consumer behavior.
Walmart saw an encouraging sign in the recovery of general merchandise sales, which increased for the first time in 11 quarters. While the rise in these sales was modest, the company viewed it as a positive indicator. Overall, the company reported earnings per share of 67 cents, exceeding the expected 65 cents, and revenue of $169.34 billion, higher than analysts’ projections of $168.63 billion.
The company’s net income fell to $4.5 billion from $7.89 billion in the same quarter last year, while comparable U.S. sales grew by 4.2%, outperforming expectations. Sam’s Club also performed well, with comparable sales rising by 5.2%, excluding fuel. E-commerce sales surged, with global online sales up 21% and U.S. sales increasing by 22%. Customers spent more in stores and online, with transactions rising 3.6% and average ticket sizes increasing by 0.6% compared to the previous year.
As the largest U.S. retailer, Walmart’s performance offers a unique view of the American consumer and broader economic trends. The company’s value-driven reputation has attracted more customers, especially as inflation pushed higher-income shoppers to its stores. With inflation levels moderating, Walmart has focused on maintaining its competitive edge, particularly in the grocery sector, by pushing vendors to lower prices. For the quarter, Walmart’s inflation remained flat year-over-year, with sales growth driven by selling more units rather than price increases. The company also ran 7,200 “rollbacks” or short-term promotions, including a 35% increase in food discounts.
Despite inflation easing, prices remain significantly higher than pre-pandemic levels, which continues to strain consumer spending. A recent jobs report from the Labor Department added to economic concerns, as job growth slowed and the unemployment rate rose. This report, coupled with earnings warnings from companies like Home Depot, has sparked worries about the economy’s trajectory, particularly regarding consumer spending.
In response to these challenges, Walmart has expanded beyond traditional retail. The company is growing its third-party marketplace, increasing its ad business, and boosting membership in its subscription service, Walmart+. It has also introduced a new grocery brand, Bettergoods, which offers low-priced meal solutions, tapping into consumers’ search for value. Rainey noted that inflation data suggests customers are shifting towards cooking more at home rather than eating out, which could benefit Walmart’s grocery business.
Walmart’s stock has performed well this year, rising nearly 31%, significantly outpacing the broader market. This reflects the company’s resilience and ability to attract shoppers in a challenging economic environment.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/08/15/walmart-reports-its-earnings-before-the-bell-heres-what-to-expect.html
