Walmart (WMT) earnings Q2 2023

Walmart on Tuesday said sales rose more than 8%, but profits tightened in the fiscal second quarter, as consumers turned to discounts on groceries and essentials.

Shares rose more than 4% in pre-market trading.

The retailer’s results beat analysts’ expectations, but repeats its profit warning last monthwhen Walmart says inflation-affected shoppers are buying fewer high-margin discretionary goods like clothing because they’re spending more on necessities.

Walmart reiterated its forecast for the second half of the year, even as it sold amid an inventory surplus. It expects same-store sales for Walmart US to grow about 3%, excluding fuel, in the second half of the year or about 4% for the full year. It predicts adjusted earnings per share to fall between 9% and 11% for the full year.

News send stocks of retail competitors Target also about 3% higher in pre-market trading. Target will report its latest quarterly results Wednesday morning.

Some of Walmart’s revenue is due to inflation that is driving up the prices of food and other items. Chief Financial Officer John David Rainey told CNBC that the retailer’s reputation is also attracting more middle- and upper-income shoppers. About three-quarters of Walmart’s food market share comes from customers with an annual household income of $100,000 or more.

He said Walmart is also seeing signs of a budget-strapped consumer falling “both in terms of quality and quantity.” For example, shoppers are increasingly using credit rather than debit, he said. They are choosing smaller food packages and buying items like tuna and canned beans instead of cold cuts and beef.

“Obviously, they’re under stress from higher gas prices, higher food prices and even housing,” he said..

Here’s what the company reported for its second fiscal quarter ended July 31, compared to Refinitiv’s consensus estimate:

  • Earnings per share: $1.77 adjusted versus $1.62 expected
  • Revenue: $152.86 billion reported versus $150.81 billion expected

Walmart net income for the quarter rose to $5.15 billion, or $1.88 per share, compared with $4.28 billion, or $1.52 per share a year earlier.

Walmart US same-store sales rose 6.5% in the second quarter, excluding fuel, year over year. This is higher than the 5.9% growth analysts expected, according to StreetAccount.

E-commerce sales grew 12% year-over-year and 18% in two years.

The company reported low double-digit comparable grocery sales growth and single-digit gains in health and wellness. The company said sales of general merchandise fell by the single-digit average, due to weakness in electronics, clothing and home products.

Walmart’s inventory levels in the U.S. rose 25.6 percent from a year ago, which the company said was primarily due to rising cost of goods and higher overall inventory.

Both Walmart and Target have issued warnings in recent weeks that they need to discount certain items to try to get them off the shelves before the critical holiday season, which will dent profits in the near term.

Walmart’s membership-based warehouse club, Sam’s Club, saw same-store sales growth of 9.5%, excluding fuel, slightly below 10.1% is expected, according to StreetAccount. The company said the number of members hit an all-time high.

As of late Monday, shares of Walmart are down about 8% so far this year. Shares closed Monday at $132.60, bringing the company’s market value to $363.48 billion.

Read the company’s earnings release here.

This story is evolving. Please check back for updates.

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