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Walmart (WMT) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Walmart Inc. WMT reported second-quarter fiscal 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year.

Quarter in Detail

Walmart’s adjusted earnings of $1.77 per share dipped by a penny from the year-ago period’s figure of $1.78. However, the metric surpassed the Zacks Consensus Estimate of $1.60.

Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. Price, Consensus and EPS Surprise
Walmart Inc. Price, Consensus and EPS Surprise

Walmart Inc. price-consensus-eps-surprise-chart | Walmart Inc. Quote

Total revenues of $152.9 billion grew 8.4% and beat the consensus mark of $151.4 billion. On a constant-currency (cc) basis, total revenues climbed 9.1%. Revenue growth was partly aided by inflation.

The consolidated gross profit margin contracted by 132 basis points (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 increased general merchandise markdowns, a mix shift toward grocery and increased cost inflation, somewhat offset by pricing.

The operating income at cc fell 6% to $6.9 billion. Consolidated operating expenses as a percentage of sales declined by 45 bps year over year due to solid sales growth, somewhat negated by wage investments.

WMT’s global advertising business soared about 30% due to Walmart Connect in the U.S. segment along with Flipkart advertising.

Segment Details

Walmart U.S.: The segment’s net sales grew 7.1% to $105.1 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 6.5% due to a 5.35% 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. Comp sales grew across the grocery and health & wellness categories. The segment continued to see an increased market share in grocery.

E-commerce boosted comps by 100 bps. E-commerce sales in the segment rose 12%. On a two-year stack basis, e-commerce sales surged 18%. As of the second quarter, Walmart U.S. had 4,600 pickup locations and more than 3,800 same-day delivery stores. The company remodeled more than 180 stores during the reported quarter. The operating income of the Walmart U.S. segment declined by 6.7% to $5.7 billion.

Walmart International: The segment’s net sales rose 5.7% to $24.4 billion. Currency movements had a $1-billion adverse impact. On a cc basis, net sales jumped 9.9%. The company witnessed positive comp sales across its biggest markets – Canada, Mexico and China. The operating income, on a cc basis, grew 28.3% to $1.1 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 17.5% to $21.9 billion. Sam’s Club comp sales, excluding fuel, grew 9.5%. While transactions grew 9.8%, the average ticket rose 0.2%. Comp sales saw broad-based strength across most categories, mainly led by food and consumables. However, tobacco hurt comp sales.

The membership income climbed 8.9% in the quarter, reflecting strong membership trends, with a record total member count. The plus penetration rate continued to rise. E-commerce fueled comps by 170 bps. E-commerce net sales jumped 25% at Sam’s Club on a robust direct-to-home show and solid curbside performance. The segment’s operating income came in at $0.4 billion, down 35.3% year over year.

Other Financial Updates & Developments

Walmart ended the quarter with cash and cash equivalents of $13.9 billion, long-term debt of $29.8 billion and total equity of $85.6 billion. Year to date, WMT generated operating cash flow of $9.2 billion and incurred capital expenditures of $7.5 billion, resulting in free cash flow of $1.7 billion. The company allocated $1.5 billion for dividend payouts and $3.3 billion for share buybacks during the reported quarter.

Guidance

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%. 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%.

Management now expects the consolidated adjusted operating income to decline 9-11%, reflecting better results in the second quarter. The metric was earlier expected to decline 11-13%. Excluding divestitures, management expects the consolidated adjusted operating income to decline 8-10%.

Management envisions earnings per share (EPS) to decline 9-11% in fiscal 2023. Excluding divestitures, EPS is expected to fall by 8-10%.

For the third quarter of fiscal 2023, Walmart expects consolidated net sales growth of nearly 5%, including currency headwinds of about $1.3 billion. Comp sales growth at Walmart U.S. (excluding fuel) is likely to be 3%. The consolidated operating income is expected to decrease 8-10%, and the EPS is likely to decline 9-11%.  

Walmart currently carries a Zacks Rank #4 (Sell). Shares of the company have declined 4.5% in the past six months compared with the industry’s decline of 3.8%.

3 Hot Retail Stocks

Here we have highlighted three better-ranked stocks, namely Dillard's, Inc. DDS, Ulta Beauty ULTA and Dollar Tree DLTR.

Dillard's, which operates retail department stores, sports a Zacks Rank #1 (Strong Buy). The company 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 6.1% from the year-ago period. DDS has an expected EPS growth rate of 14.6% for three to five years.

Ulta Beauty, which operates as a retailer of beauty products, has a Zacks Rank #2 (Buy). Ulta Beauty has a trailing four-quarter earnings surprise of 49.8%, on average. ULTA has an expected EPS growth rate of 10.7% for three to five years.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the year-ago reported number.

Dollar Tree operates discount variety retail stores. The stock currently carries a Zacks Rank #2. DLTR has an expected EPS growth rate of 15.5% for three to five years.

The Zacks Consensus Estimate for Dollar Tree’s current financial-year revenues and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago reported figure. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average.



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