Retailers

Walmart Breaks Through in Q2

Grocery sales and e-commerce power best comps in a decade
Photograph courtesy of Walmart

Walmart’s momentum is accelerating, drawing more shoppers and bigger baskets, blowing past expectations for earnings and revenue in its fiscal second quarter.

In the U.S., the Bentonville, Ark.-based retailer posted its highest nonfuel comparable-store sales performance in more than a deacde – a 4.5% jump, reflecting a 2.2% increase in store traffic and a 2.3% increase in average ticket. E-commerce, which grew by 40% in the quarter helped by an expanding online grocery platform, also contributed 1% to the comp figure, officials said.

U.S. sales, which increased by 3.8% to $128 billion in the quarter, were supported by mid-single-digit comps in grocery – Walmart’s strongest performance in nine years – led by fresh food. Officials said sales also benefited from warm spring weather, sparking sales of apparel and seasonal home goods; inflation in branded drugs, boosting pharmacy comps; and Walmart’s strongest electronics comps in four years, sparked by what it called an “elevated selection” of TVs, wearables, audio and gaming.

In a statement, Walmart CEO Doug McMillon credited the U.S. performance to a combination price and service improvements under U.S. CEO Greg Foran.

“Greg and the Walmart U.S. team continue to focus on price leadership, a compelling merchandise assortment and, importantly, on improving the experience of shopping at Walmart,” McMillon said. “The team is taking action to make shopping with us easy, fast, friendly and fun. For the quarter, we saw traffic growth of more than 2% in our stores as well as higher average baskets, which together contributed to the strong comp sales performance. Fresh food category sales were strong and led to the best grocery comp in nine years. Customers continue to gravitate toward our selection of fresh produce, meat and bakery items that offer great quality at low prices.”

Customers are responding favorably to updated offerings in areas such as bakery, as well as improved signing and presentation in meat and produce, he said. “Meanwhile, our consistent focus on foundational areas such as associate training, supply chain and price are creating competitive advantages and enabling us to take market share,” he said.

Walmart has continued to feed its momentum with price investment. Gross margins in the quarter, which ended July 31, were down by 34 basis points from the same period last year, although CFO Brett Biggs said higher fuel and hauling costs also contributed.

Walmart also saw strong performance at its Sam’s Club membership division, with 5% comps supported by a 6.7% increase in traffic to the membership clubs. Total sales decreased at Sam’s only slightly, reflecting a round of store closures earlier this year. However, McMillon said about half of Sam’s comp figure could be attributed to members at closed stores shifting to other locations, a retention rate he said was higher than anticipated.

For the quarter, U.S. revenues came in about $2 billion over analyst estimates, and earnings per share of $1.29 beat consensus by 7 cents. Its stock was up near 11% in premarket trading following the earnings announcement.

Walmart also raised sales and earnings guidance for the fiscal year. The company expects Walmart U.S. comps to be up by 3% this year, vs. an initial forecast of 2% growth. The current third quarter is cycling hurricane events last year that boosted sales, officials said. Adjusted earnings per share will range from $4.90 to $5.05, up slightly from the original guidance of $4.75 to $5.

 

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