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Walmart (WMT) earnings Q2 2023

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A client wearing a protective mask shops in a Walmart store on May 18, 2021 in Hallandale Beach, Florida.

Joe Raedle | Getty Images

Walmart on Tuesday said sales grew greater than 8%, but profits tightened within the fiscal second quarter, as consumers turned to the discounter for groceries and essentials.

Shares of the corporate rose about 5% to shut the day at $139.37.

The retailer’s results surpassed analysts’ expectations, but echoed its profit warning last month, when Walmart said inflation-pinched shoppers were buying less high-margin discretionary merchandise like apparel as they spent more on necessities.

Walmart expects those spending patterns to persist. It reiterated its forecast for the back half of the yr, at the same time as it sells through a glut of inventory. It expects same-store sales for Walmart U.S. to grow by about 3%, excluding fuel, for the second half of the yr, or about 4% for the complete yr. It anticipates adjusted earnings per share will decline between 9% and 11% for the complete yr.

“We expect inflation to proceed to influence the alternatives that families make and we’re adjusting to that reality so we will help them more,” CEO Doug McMillon told analysts on a conference call Tuesday.

Here’s what Walmart reported for its second quarter ended July 31, compared with Refinitiv consensus estimates:

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

Walmart’s 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 yr earlier. 

Same-store sales for Walmart U.S. grew 6.5% within the second quarter, excluding fuel, compared with the year-ago period. That was higher than the 5.9% growth that analysts expected, in accordance with StreetAccount.

E-commerce sales rose 12% compared with the year-ago period and 18% on a two-year basis.

More high-income consumers, penny-pinching

A few of Walmart’s sales gains got here from inflation, which is driving up prices of food and other items. It also got a lift as families across income levels shopped at its stores and website.

Chief Financial Officer John David Rainey told CNBC the retailer’s repute as a discounter is attracting more middle- and high-income shoppers. About three-quarters of Walmart’s market share gains in food got here from customers with annual household incomes of $100,000 or more. 

He said Walmart is seeing signs of a budget-strapped consumer who’s trading down “by way of quality and quantity,” too. For instance, he said, shoppers are increasingly using credit greater than debit, he said. They’re choosing smaller packages of food and buying items like canned tuna and beans as an alternative of deli meats and beef. 

“Clearly, they’re stressed from higher gas prices, higher food prices and even housing,” he said.

Walmart’s own brands, which generally cost less, have also gained momentum. Sales of the private-label products are growing two times as fast as in the primary quarter, Rainey said.

The corporate reported low double-digit comparable sales growth in grocery and high single-digit gains in health and wellness. Sales of general merchandise fell mid single digits, attributable to softness in electronics, apparel and residential products, Walmart said.

Back-to-school sales are off to a powerful start, as parents buy backpacks and other supplies, Rainey said.

Walmart’s news sent shares of retail rival Goal up nearly 5% on Tuesday. Goal is about to report its latest quarterly results on Wednesday morning.

Walmart is offsetting profit pressure by chasing latest ways to generate income, too, like its subscription service Walmart+. It announced Monday that members who belong to this system will get access to Paramount+ without spending a dime starting in September.

Selling through excess inventory

Each Walmart and Goal issued warnings in recent months that they needed to discount some items to attempt to get them off of shelves and out of store backrooms before the all-important holiday season, which might hit profits within the near term.

Apparel, for instance, saw a pointy drop up to now six months at Walmart. McMillon told analysts on the conference call that its inventory position reflects strange comparisons, too, because it laps a year-ago period with unusually strong demand and better out-of-stocks.

Walmart’s inventory levels within the U.S. were up 25.6% within the second quarter compared with a yr ago, which the corporate said was mainly attributable to inflation and better levels of general merchandise.

Rainey told CNBC that 40% of the $11 billion of upper inventory reflects increased costs of products from inflation. About $1.5 billion is the quantity that Walmart would really like to “wave a magic wand” to make disappear, he said.

Walmart is selling through that excess merchandise with markdowns and has “canceled billions of dollars with a view to help align inventory levels with expected demand,” Rainey said on an earnings call. He estimated that about 15% of the corporate’s inventory growth is above the degrees that it wants.

McMillon told analysts on the conference call that Walmart has found ways to chop costs, too. For instance, he said Walmart reduced the variety of shipping containers in its system by greater than half from first-quarter levels to bring them much closer to historical averages, he said.

He said Walmart could have a cleaner inventory position by the point Halloween rolls around.

“I expect a powerful finish to the back-to-school season and we are going to quickly transition to the vacations,” he told analysts.

Walmart’s membership-based warehouse club, Sam’s Club, has also attracted latest customers amid inflation. Membership hit an all-time high within the quarter. Same-store sales for the club grew 9.5%, excluding fuel, barely below the ten.1% expected, in accordance with StreetAccount.

As of Monday’s close, Walmart shares are down about 8% thus far this yr. The stock closed Monday at $132.60, bringing the corporate’s market value to $363.48 billion.

Read the corporate’s earnings release here.

– CNBC’s Lauren Thomas contributed to this report.

Correction: Walmart announced Monday that members who belong to Walmart+ will get access to Paramount+ without spending a dime starting in September. An earlier version misstated the day.

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