Earnings

Grocery, Online Drive Blockbuster Q2 For Walmart

Walmart

Walmart made its investors very happy yesterday (Aug. 16) as Q2 2018 earnings came in well ahead of expectations across the board. More customers hit the stores and ordered from online. In both cases, consumers filled their baskets with more items, increasing basket size and revenues.

What was in those baskets? Grocery and apparel were Walmart’s most robust sellers. So robust, in fact, that Walmart posted its strongest same-store sales growth in over a decade.

Even more telling is the breadth of the customers the retailer is serving. Grocery growth, particularly in fresh foods, and online sales prove that Walmart is now for every shopper across each demographic group.

“Thanks to the hard work of our associates, we had a great quarter with strong results and momentum across the business,” said CEO Doug McMillon in a statement released concurrently with earnings. “We’re pleased with how customers are responding to the way we’re leveraging stores and eCommerce to make shopping faster and more convenient. We’re continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico. Customers have choices and we’re making it easier than ever for them to choose Walmart.”

By The Numbers

Q2 revenues jumped 3.8 percent to $128 billion, well ahead of analyst forecasts of $125.9 billion.

Walmart reported a net loss of $861 million (29 cents a share) for the quarter end on July 31, compared with a net income of $2.9 billion (96 cents a share) a year ago. That loss was largely from the sale of a majority stake in Walmart Brazil. Adjusting for that and other one-time events, it earned $1.29 per share, seven cents ahead of analysts’ expectations.

Same-store sales growth figures saw an increase of 4.5 percent year on year, its strongest in-store growth in a decade, nearly doubling analysts predicted increase of 2.3 percent.

eCommerce was also a highlight, with Walmart reporting 40 percent growth during the second quarter. That is a bit down from this time last year, when Walmart reported a 50 percent surge in its digital operations. The retailer still forecasts an increase of 40 percent for the full year for eCommerce, and credits the increases this year to a successful website redesign and growing consumer interest in its digital grocery items, including delivery and curbside pickup.

The firm benefited from a cooler-than-expected spring season that officially turned into an extremely warm summer in May, which in turn pushed sales of items like air conditioners, swimwear and gardening supplies in Q2. According to McMillon, Walmart was the beneficiary of increasingly bullish consumers who felt comfortable spending in its stores.

According to reports, McMillon said, “Customers tell us that they feel better about the current health of the U.S. economy, as well as their personal finances. They’re more confident about their employment opportunities.”

That confidence is apparently contagious, as Walmart raised its guidance, saying it now expects full-year net sales to rise 2 percent, U.S. comps to jump 3 percent and earnings of $4.90 to $5.05 a share, up from previous guidance of $4.75 to $5.

Beyond The Numbers

While there were a lot of sparkling numbers on offer, the most notable growth segments were in eCommerce and grocery — two areas where Walmart happens to be locked into an incredibly heated battle with reigning eCommerce (and aspiring grocery) mega player Amazon.

Speaking with media representatives on Thursday morning, Walmart’s eCommerce head Marc Lore noted that the company’s website is seeing its burgeoning marketplace business attract increasing amounts of interest from brands and retailers. The redesign of the website, Lore said, has been particularly persuasive on that front.

“Partnering with new brands takes time,” Lore said, according to CNBC, “but the company is already seeing heightened traffic to certain parts of Walmart.com” and plans to continue to expand its marketplace offerings. Lore referred to the acquisition of Flipkart and the addition of Lord & Taylor to the Walmart website as examples of how the retailer is looking to expand the richness and variety in its digital offerings.

Grocery — an area in which Walmart has made massive investments — seems to be paying back all of the time and care Walmart has taken to maintain its position as the nation’s largest seller of groceries (with 23 percent of the market, according to the latest data). Grocery is also important to Walmart for another reason: It represents 50 percent of the company’s sales. In an effort to keep those grocery shoppers sticky, Walmart announced yesterday that it expects to offer home grocery delivery to 40 percent of the U.S. by the end of this year, and has expanded its curbside pickup program to over 1,800 stores.

At the same time, Walmart is also expanding its digital-only offerings: Its baby products segment will add 30,000 new products this year.

“The business feels solid, the foundation feels good,” said Greg Foran, chief executive of Walmart U.S., during a conference call.

And though the market clearly agrees (with Walmart’s stock soaring after the earnings were announced), some analysts were a bit more dubious.

Walmart is selling more, bringing in more customers and putting together bigger baskets that ever before, Neil Saunders, managing director of GlobalData Retail, told TheStreet after earnings were announced. All of which is good, he remarked, but raises concerns that Walmart is investing a lot to enable this growth and taking a big bite out of the firm’s profitability.

Saunders said, “The decline in operating profit is more concerning as it reflects ongoing pressures from investing in lower prices, customer service, digital infrastructure and store refurbishments, as well as increased labor and transportation costs. These pressures are unlikely to dissipate as the year progresses.”

It’s funny how all of this seems just fine … when Amazon reported the very same thing for about 15 years straight.

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