Walmart Earnings Top Q2 Estimates, Stock Soars

  • Walmart stock rose more than 6% in the premarket session after it topped second-quarter estimates.
  • The company’s strong first-half performance led its management to raise its full-year earnings outlook.

Walmart (WMT) stock was up more than 6% in the premarket session thanks to its stronger-than-expected second-quarter performance. Walmart’s second-quarter sales and earnings topped Wall Street’s estimates. As we expected, its quarterly results benefited from improved comps and profitability in the US. On a two-year stacked basis, Walmart’s US comps increased 7.3%, its best growth rate in a decade. Moreover, the segment’s operating income continued to improve.

The retailer posted total revenue of $130.4 billion, up 1.8% YoY (year-over-year). Moreover, its revenue came in ahead of analysts’ estimate of $130.1 billion. Walmart’s adjusted EPS of $1.27 fell 1.6%, reflecting dilution from Flipkart. However, its earnings handily exceeded analysts’ estimate of $1.22.

Key takeaways from Walmart’s second quarter

The company’s stellar performance in the US came on the back of continued momentum in its e-commerce business. It’s e-commerce sales in the US jumped 37% driven by robust growth in the online grocery business. Walmart’s comps increased 2.8%, reflecting a 2.2% increase in ticket size and a 0.6% increase in traffic. e-Commerce sales contributed 1.4% to its comps growth rate. The company’s strong performance in the US comes despite a difficult YoY comparison and weather-related challenges, which is impressive.

Walmart is beating its peers in the online grocery business in the US. According to research by Second Measure, Walmart had 62% more customers than its next-highest rival in June. The expansion of its digital offerings backs Walmart’s stellar performance in the online grocery space.

At the end of the second quarter, Walmart expanded its online grocery pickup service to 2,700 stores. Moreover, 1,100 stores offered same-day grocery delivery.

Walmart’s margins remained subdued as price investments, seasonal markdowns, and higher e-commerce sales remained a drag. However, a better merchandise mix and a focus on high-margin private brands are supporting the retailer’s profitability. Moderation in transportation costs also cushioned its second-quarter margins.

The company’s second-quarter earnings took a hit from increased interest expenses and dilution from Flipkart. However, productivity savings, a decline in the tax rate, and a lower outstanding share count supported its EPS. Walmart has surpassed analysts’ estimates for the last six straight quarters.

Walmart raised its full-year earnings outlook

A better-than-expected first-half performance led Walmart to increase its full-year EPS outlook. Management now expects its adjusted EPS to decrease or increase slightly. Previously, Walmart’s adjusted EPS were projected to decline at a low-single-digit rate.

We expect Walmart stock to continue to benefit from improved comps in the US. Walmart’s dominance in the online grocery market is likely to drive its sales. Meanwhile, continued strength in Mexico should further support its sales. Productivity savings, a better merchandise mix, and a lower tax rate are also expected to support the retailer’s earnings.