Walmart Amps Up Digital Progress in Positioning for Second Half

Convenience. Membership. Delivery times. Delivery density. eCommerce. Marketplaces.

You would be forgiven for thinking these were keywords from Amazon’s Q2 earnings announcement. But they weren’t. They were the themes that sounded most often on Walmart’s Q2 earnings call Thursday (Aug. 15) as it reported slow but steady growth and an “appropriately cautious” outlook on consumer spending for the second half of the year.

“So far, we aren’t experiencing a weaker consumer overall,” CEO Doug McMillon told the earnings call audience. “Around the world, our customers and members continue to want four things. They want value, they want a broad assortment of items and services. They want a convenient and enjoyable experience buying them, and they want to do business with a company they trust. These four things are constant, but the way we provide them is changing and changing fast. The results we’re delivering are due to real progress across these dimensions.”

By the Numbers

By the numbers, quarterly revenue across all of Walmart’s business lines rose about 5%.

Consolidated operating income was up $0.6 billion, or 8.5%; adjusted operating income was up 7.2% due to higher gross margins and growth in membership income, as well as reduced eCommerce losses.  However, the real stories from the announcement were the optimistic take on spending from all income groups, including the paycheck-to-paycheck segment, and competitive positioning against Amazon.

“Across categories, we’re providing low prices and winning customer consideration, including in general merchandise. With Walmart U.S. comp sales growth in hardlines, home and fashion, we’re also seeing higher engagement across income cohorts, with upper income households continuing to account for the majority of gains,” said CFO John David Rainey.

Although neither McMillon nor Rainey mentioned Amazon by name, both focused several times on Walmart’s digital prowess and delivery efficiency, traits that are usually the hallmark of Amazon.

This approach differed from the Q1 earnings call that focused on Walmart’s price rollbacks as a hedge against inflation. That message was delivered Thursday but took a back seat to the focus on the second half of the year.

McMillon said prices at both Walmart U.S. and Sam’s Club U.S. were slightly deflationary. Overall, he said Walmart’s U.S. food prices were slightly inflated year-over-year but down 30 basis points compared to Q1. “Customers from all income levels are looking for value, and we have it,” McMillon said.

Shopping Shifts

Where those customers are finding those values is changing at Walmart.

Among the stats quoted during the discussion part of the earnings call: Overall eCommerce sales were up 21%; Walmart Marketplace sales were up 32%; membership income across Sam’s Club and Walmart+ was up 21%; store fulfilled delivery was up 50% all over Q1.

Rainey made a point of saying that eCommerce sales increases were the largest contributor to the successful quarter. The company’s relatively new customer data and analytics division saw a 200% increase, according to Rainey.

Perhaps most importantly, in the general economic picture in the U.S., Walmart raised its guidance for the year to between 3.75% and 4.75%. Rainey didn’t rule out the adverse effects of a potential recession, election instability or global geopolitical instability. He called his approach “appropriately cautious.”

“Each of the months of the second quarter were relatively consistent,” Rainey said. “If you were to look at the pure comps for each month, July was actually slightly higher. But we think that’s largely a result of where the days of the week fell in the last week of the month, and we did not see a step down. And our outlook for the back half of the year is really for more of a continuation of what we’ve seen. Even in the first couple weeks of August here, things have been remarkably consistent. So, I know everyone is looking for some piece of information that maybe indicates further weakness with our members and our customers. We’re not seeing it.”

As a brand known for catering to the paycheck-to-paycheck customer, the call was surprising in that it was absent any evidence of the kinds of trade downs consumers have displayed in other Q2 earnings calls, especially in the QSR and restaurant business.

This quote from The Food Institute summarizing recent Q2 earnings is telling: “To anyone paying attention, the overall trend in the industry in Q2 was not much of a surprise,” one of its analysts wrote. “Inflation is moderating, but there clearly is a delayed effect of the price increases taken over the last two-plus years. The lower-income consumer is wobbling. Between trade-downs in quick-service, and a clear pullback in breakfast, there is some evidence that even customers on a firmer financial footing are shifting toward more in-home consumption.”

But the lower-income consumer was not wobbling at Walmart. Nor should lower-income levels be associated with the paycheck-to-paycheck status. According to PYMNTS Intelligence, 62% of U.S. consumers now live paycheck to paycheck, and that includes 48% of consumers earning more than $100,000 annually.

In other words, higher incomes do not necessarily protect people from the financial stress that comes from living from one paycheck to the next. In fact, according to a recent edition of PYMNTS Intelligence’s “New Reality Check: The Paycheck-to-Paycheck Report: Why One-Third of High Earners Live Paycheck to Paycheck,” 36% of those earning more than $200,000 annually also say they live paycheck to paycheck.