More shoppers, digital growth give Walmart Q2 boost

BENTONVILLE, Ark. — Walmart reported better-than-expected results for its second quarter amid surging online sales and an increase in store traffic.

Walmart's total revenue for the period ended July 31 rose 2.3% to $123.36 billion for the quarter, better than analysts had expected. U.S. store visits increased 1.3% over the year-ago period.

Same-store sales for U.S. stores, excluding fuel, rose 1.7%. It was the discounter's 12th consecutive quarter of comparable sales gains. Sales rose 1.2% at Sam's Club, and 1.8% at Walmart.

Online transactions surged 60%, boosted by new digital initiatives, including the acquisition of e-commerce players like Moosejaw and Modcloth, and an expanded assortment of merchandise. 

"Sales growth is coming from across the business – including stores, e-commerce and a combination of both," said CEO Doug McMillon in a statement.

The company reported low single-digit comps increases in its health and wellness segment, noting that customer traffic, branded drug price inflation and script growth drove solid performances in sales of both pharmacy and over-the-counter products. (The company’s Sam's Club division's health and wellness segment saw mid-single-digit comps increases, which it attributed to generic script count momentum and strong performance in nutrition and protein drink sales).  

A particularly bright spot for Walmart was food, which had its best same-store sales quarter in five years. The performance bodes well for the chain which is more than holding its own in the midst of brutal competition from the likes of Aldi, newcomer Lidl and Amazon.

Neil Saunders, managing director of GlobalData Retail, said that Walmart's continued investment in everyday low prices is helping to drive its success in grocery.

"As the grocery sector enters one of its toughest phases, we believe that Walmart is well positioned to make further gains," Saunders said. "It is one of the few firms that have the firepower to cope with the push towards compressed prices and margins."

Walmart has been investing heavily in its online operations and in price promotions. Those efforts took a toll on the chain's margins and net income.

"We note the decline in net income, but believe that some short term erosion is necessary as the business invests in its future," Saunders commented. (For more of his commentary, click here.)

Net income fell 23% to $2.9 billion, or 96 per cents per share, from $3.7 billion, or $1.21 per share, in the year-ago period, at least partly due to a loss from repurchasing debt after a bond tender offer.

Excluding special items, the discounter reported adjusted earnings per share of $1.08 a share, topping analysts' estimates of $1.07 per share.

Gross margins were down 11 basis points to 25%, including a five-basis-point decline in the United States. Operating margins fell to 4.9% from 5.1%, and U.S. operating expenses rose 3.9%.

"Strategic price investments in key markets and the growing mix of our e-commerce business reduced the gross margin rate," Walmart CFO Brett Biggs said in a statement.

Walmart raised the low end of its earnings outlook for the full year, now forecasting profit ranging from $4.30 to $4.40 per share, adjusted. Previously, the retailer said it expected to earn $4.20 to $4.40 a share. Analysts were calling for earnings per share of $4.37.

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