Walmart raised its forecast for the year on Thursday as quarterly revenue rose nearly 5%, the company's stores and website attracted more traffic and sales outside of the grocery department increased.
The discounter beat Wall Street's sales and earnings expectations and its shares rose 6 percent in morning trading.
Walmart now expects full-year sales to increase by 3.75 to 4.75 percent and adjusted earnings of between $2.35 and $2.43 per share. The company had previously said it expected earnings to be at the high end or slightly above its original full-year guidance, which called for revenue growth of 3 to 4 percent and adjusted earnings per share of between $2.23 and $2.37.
Walmart has raised its forecast, but the second half of the year may not be as good as Wall Street expected. The retailer expects third-quarter adjusted earnings of 51 cents to 52 cents per share, below analysts' expectations of 54 cents. Analysts had also expected adjusted earnings of $2.43 per share for the year – the highest in Walmart's forecast.
In an interview with CNBC, Chief Financial Officer John David Rainey said the company's more positive outlook reflects strength in the first half of the year. He said Walmart decided against raising expectations for the second half of the year, particularly as the 2024 election, unrest in the Middle East and other dynamics could affect consumer sentiment.
“In this environment, it is responsible or wise to be a little cautious about the outlook, but we are not predicting a recession,” he said.
He said Walmart hasn't noticed any change in consumer behavior. He said each month of the quarter has been “relatively consistent” and the back-to-school season “is off to a pretty good start.”
“We are seeing our members and customers remain selective, discerning and appreciative, focusing on things like essentials rather than unnecessary items. Importantly, however, we are not seeing any additional impact on consumers' health,” Rainey said.
Walmart saw another promising indicator: Sales of everyday items, such as lawn and garden supplies, were positive for the first time in 11 quarters. He said those sales were up only slightly but were an “encouraging sign for us.”
Here's what the discounter reported for the second fiscal quarter compared to Wall Street expectations, according to a survey of analysts conducted by LSEG:
- Earnings per share: 67 cents adjusted compared to 65 cents expected
- Revenue: 169.34 billion US dollars compared to 168.63 billion US dollars
Walmart's net income fell to $4.5 billion, or 56 cents per share, in the three-month period ended July 31. compared to $7.89 billion, or 97 cents per share, in the same period last year.
Revenue increased from $161.63 billion in the same quarter last year.
Walmart US's comparable sales (excluding fuel) rose 4.2 percent in the second quarter compared to the same period last year, beating analysts' expectations. The industry metric includes sales at stores and clubs that have been open for at least a year.
At Sam's Club, comparable sales increased by 5.2%, without fuel, in line with analysts' expectations.
E-commerce sales increased 21% worldwide and 22% in the US
Walmart customers in the U.S. visited the company's stores and website more frequently and spent slightly more during the quarter than in the same period last year. Transactions increased 3.6 percent and the average amount was 0.6 percent higher than the year-ago quarter.
As investors and economists seek clarity, Walmart offers the latest insight into the health of American households and the outlook for the overall economy.
As the nation's largest retailer, Walmart is in a unique position to provide insights into where consumers are spending and saving money. The company's reputation for value has boosted sales over the past two years as inflation drove more higher-income shoppers to its stores and website.
Inflation has eased and returned to historic levels, according to July data from the U.S. Department of Labor. The consumer price index, which measures prices for a wide range of goods and services, rose 2.9% last month compared to the previous year. This is the lowest level since March 2021.
During the campaign, many politicians – including presidential candidates Vice President Kamala Harris and former President Donald Trump – have talked about how they plan to tackle higher prices for everyday items, including groceries. Harris in particular has blamed companies for “price gouging.”
Walmart, for its part, said it is pushing its suppliers to lower prices. Rainey said that has long been a focus of the company.
He told CNBC that inflation at Walmart was flat year-over-year, so sales growth was due to higher unit sales rather than higher prices. He said there were 7,200 “markdowns,” or short-term special offers on items, during the quarter, including a 35 percent increase in the number of price cuts on groceries.
Still, prices are much higher than they were before the pandemic, leaving consumers frustrated and overwhelmed. A Labor Department jobs report earlier this month also raised concerns, triggering a sharp sell-off in stock markets as job growth slowed and the unemployment rate rose more than expected.
The earnings reports of some companies have increased concerns about the economy. Home Depot beat quarterly profit and revenue expectations on Tuesday, but warned of declining sales in the second half of the year and consumer caution, even among its more middle- and upper-class customer base.
In addition to attracting inflation-stricken shoppers, Walmart has also taken steps of its own to drive growth. The company has looked outside traditional retail channels, trying to bring more sellers to its third-party marketplace, run more ads and attract more members to its Walmart+ subscription service. The company has also launched a new grocery brand called Bettergoods, with most items priced under $5 – including meals like frozen pizza and chicken wings.
Rainey said Walmart is likely benefiting as customers look for cheaper alternatives to fast food. He pointed to inflation data released this week that showed the price gap between food at home and food away from home is widening.
“It’s clear that customers are moving toward preparing more meals at home rather than eating out,” he said.
Walmart shares closed at $68.66 on Wednesday. So far this year, the company's stock price has risen nearly 31 percent, outpacing the S&P 500's gains of about 14 percent.
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