Walmart (WMT) Looks Poised on Solid Omnichannel Operations
Walmart Inc. WMT has been doing every bit to solidify its already robust market position. The omnichannel retailer has been gaining from its strong efforts to boost store and e-commerce operations.
Markedly, Walmart’s e-commerce business and omnichannel penetration have been increasing since the pandemic. From the fiscal 2021 beginning to the fiscal 2022 end, the company’s digital sales as a percentage of sales increased from 6% to 13%.
That said, the inflationary cost scenario remains a concern for the company’s margins. Walmart’s fiscal 2023 consolidated operating income and earnings per share (EPS) updated guidance suggests a decline from the year-ago period’s reported figures.
However, this Zacks Rank #3 (Hold) company is undertaking additional pricing actions in the third quarter. This, along with the abovementioned upsides, is likely to help the supermarket giant maintain its firm footing.
Shares of the company have rallied 15.6% in the past three months compared with the industry’s growth of 13.4%.
Solid Comp Sales Picture
The company has been gaining from its sturdy comp sales record, which is driven by its constant expansion efforts and splendid e-commerce performance. Walmart has been undertaking several efforts to enhance merchandise assortments.
Also, the company has been focused on store remodeling to upgrade them with advanced in-store and digital innovations. The company remodeled more than 180 U.S. stores in the second quarter of fiscal 2023. Apart from this, Walmart is gaining from its compelling pricing strategy, which helps it draw customers.
U.S. comp sales, excluding fuel, improved by 6.5% due to a 5.4% increase in the average ticket, with transactions rising 1% year over year. Comp sales were mainly driven by strength in food categories, the solid sales of private brands and an elevated average ticket. The segment continued to see an increased market share in grocery. E-commerce boosted comp sales by 100 basis points (bps).
U.S. comp sales, excluding fuel, are likely to be roughly 4% now compared with the 3.5% growth expected before. For the second half of fiscal 2023, U.S. comp sales, excluding fuel, are anticipated to rise roughly 3%. For the third quarter of fiscal 2023, comp sales growth at Walmart U.S. (excluding fuel) is likely to be 3%.
On its last earnings call, management stated that it expects a solid end to the back-to-school season and remains encouraged about its fall and holiday products.
Walmart now expects consolidated net sales growth of nearly 4.5% for fiscal 2023. Excluding divestitures, the metric is likely to grow roughly 5.5%. Management earlier anticipated consolidated net sales growth of nearly 4% at cc. Excluding divestitures, the metric was expected to grow nearly 4.5-5%. For the third quarter of fiscal 2023, Walmart expects consolidated net sales growth of nearly 5%.
Image Source: Zacks Investment Research
Online Sales a Driver
Walmart has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems.
The company is innovating in the supply chain and adding capacity as well as building businesses, such as Walmart GoLocal, Walmart Connect, Walmart Luminate, Walmart+, Spark Delivery, Marketplace and Walmart Fulfillment Services. The company recently revealed the addition of Paramount+ streaming service for the members of Walmart+ at no extra cost.
U.S. e-commerce sales rose 12% in the second quarter and surged 18% on a two-year stack basis. The company is witnessing rapid growth in advertising income. At Sam’s Club, e-commerce sales jumped 25% due to a robust direct-to-home show and a solid curbside performance. In the International segment, e-commerce sales advanced by 15% on a cc basis.
Walmart has taken robust strides to strengthen its delivery arm. This is evident from its deal with Canoo, the expansion of InHome delivery service, investment in DroneUp, a pilot with HomeValet, the introduction of Carrier Pickup by FedEx, the launch of the Walmart+ membership program, drone delivery pilots in the United States with Flytrex and Zipline and a pilot with Cruise to test grocery delivery through self-driven all-electric cars.
Also, Walmart unveiled Express Delivery and joined forces with Point Pickup, Roadie and Postmates alongside acquiring Parcel to enhance its delivery service. Furthermore, the company’s store and curbside pickup options add to customers’ convenience. As of the second quarter of fiscal 2023, Walmart U.S. had 4,600 pickup locations and more than 3,800 same-day delivery stores.
Margin Woes & EPS Guidance
In the second quarter of fiscal 2023, Walmart’s consolidated gross profit margin contracted by 132 bps, primarily due to markdowns and a sales mix in the U.S. segment as well as a LIFO charge at Sam’s Club related to inflation. The gross margin at Walmart U.S. fell 106 bps due to increased general merchandise markdowns, a mix shift to grocery and increased cost inflation, somewhat offset by pricing.
During the second quarter of fiscal 2023, food inflation continued to rise. Like other industry participants, Walmart is encountering cost pressure associated with fuel prices, supply chain and excess inventory.
Management expects the consolidated adjusted operating income to decline 9-11% in fiscal 2023. Excluding divestitures, management expects the consolidated adjusted operating income to decline 8-10%. Walmart envisions EPS to decline 9-11% in fiscal 2023.
In the third quarter of fiscal 2023, the consolidated operating income is expected to decrease 8-10%, and the EPS is likely to decline 9-11%. The company’s sales and profit views for fiscal 2023 reflect the trends witnessed to date along with volatility related to inflation and consumer spending in the coming quarters.
3 Hot Retail Stocks
Here we have highlighted three better-ranked stocks, namely Dillard's, Inc. DDS, Ulta Beauty ULTA and Kroger KR.
Dillard's, which operates retail department stores, sports a Zacks Rank #1 (Strong Buy). DDS has a trailing four-quarter earnings surprise of nearly 215%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dillard's current financial-year sales suggests growth of 4.8% from the year-ago period.
Ulta Beauty, which operates as a retailer of beauty products, sports a Zacks Rank #1. Ulta Beauty has a trailing four-quarter earnings surprise of 32.8%, on average.
ULTA has an expected EPS growth rate of 11.9% for three to five years. The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 13.7% from the year-ago reported number.
Kroger, a renowned supermarket retailer, currently carries a Zacks Rank #2 (Buy). KR has an expected EPS growth rate of 11.3% for three to five years.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.3% and 7.9%, respectively, from the year-ago reported figure. KR has a trailing four-quarter earnings surprise of 15.7%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Dillard's, Inc. (DDS) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
