Walmart Raises Outlook as Value Message Resonates

Updated Aug. 17 at 4:13 p.m.

Walmart Inc. was able to throw its weight around in the second quarter, topping estimates with profit and sales gains.

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The momentum has the retail giant also feeling better about the year. Walmart raised its annual guidance and expects to continue to be able to meet inflation-addled shoppers where they are with its value message.

While Walmart has long been the 800-pound gorilla of global retail, it has in recent years evolved to be not just big, but also much more forward looking, leaning into technology and getting real about linking retail and e-commerce.

“We’re a people-led, tech-powered omnichannel retailer dedicated to helping people save money and live better,” said Doug McMillon, president and chief executive officer, on a conference call with analysts. “We like who we are and we like who we are becoming. We’re positioned for growth.

“We can serve people how they want to be served, whether that’s in a store or club, picking up an order, curbside or having it delivered,” McMillon said. “We continue to grow some of our newer businesses, which shape the overall model in a positive way, helping to enable us to grow profit faster than sales.”

At heart, still a retailer, the company is continuing to chase new technologies, from AI to automation.

Executives touted how the firm’s automated fulfillment centers are 30 percent more efficient than its other facilities and that stores that are fed by the automated centers are 15 percent more productive.

Simply put, Walmart is looking to continue to press its scale advantage, just in new ways.

Second-quarter net income increased 53.3 percent to $7.9 billion, or $2.92 a diluted share, from $5.1 billion, or $1.88, a year earlier. Adjusted earnings per share came in at $1.84, 13 cents better than the $1.71 analysts projected, according to FactSet.

Revenues for the three months ended July 31 rose 5.7 percent to $161.6 billion from $152.9 billion. Comparable sales increased 6.4 percent.

The retailer’s e-commerce business grew 24 percent as its advertising business, which lets brands promote their products on Walmart’s platform, increased by approximately 35 percent.

Investors pushed shares of the stock up initially only to reverse course and trade shares of Walmart down 2.3 percent to $155.67 on Thursday.

Competitor Target Corp. also posted big profit gains last quarter, but was tripped up on the sales line, posting a decline with weakness in discretionary categories and running into controversy with its Pride collection.

The discretionary category was a weakness for Walmart too, with apparel, home and sporting goods showing low-single-comp declines at its flagship U.S. business, offset by strength in the company’s large grocery business.

But the retail giant has also found a new way to sell fashion — through its online marketplace, which has opened up opportunities to sell styles at higher price points than is typical in its stores.

Walmart’s general merchandise categories, including apparel, home and hardlines goods, saw double-digit increases in its marketplace business. And the number of sellers using the company’s fulfillment services rose by more than 50 percent, strengthening another revenue channel.

The company raised its earnings outlook for the year to adjusted EPS of $6.36 to $6.46, ahead of the $6.10 to $6.20 forecast in May. And sales are now expected to rise by 4 percent to 4.5 percent, ahead of the roughly 3.5 percent gain seen previously.

It’s not that Walmart expects shoppers to come roaring back, but that the discounter sees itself winning one way or another.

“If things do get tougher, [consumers] are going to increasingly look for value and we’re going to be able to grow the top line,” said John Furner, president and CEO of Walmart U.S.

“Hopefully, things do get better,” Furner said. “There are a lot of conflicting data points. There are reasons to be optimistic in areas like employment and the wage inflation that’s happened. And there are other reasons to be concerned — consumer balance sheets potentially weaken over time.

“But again, we like our position,” he said. “We like it in terms of the breadth of product categories we can sell whatever people want to buy….Our job is to grow our share to win through the customer value [proposition], which is price, assortment, experience and trust.”

A quick game of CEO musical chairs brought change in the two divisional leadership slots behind Furner.

Judith McKenna decided to retire as president and CEO of Walmart international — a business with $101 billion in revenues last year. That role is being picked up by Kathryn McLay, who was head of Walmart’s Sam’s Club.

While the number of women CEO’s in fashion has been growing, most of the big jobs are still held by men, and many women who leave CEO jobs are replaced by men, so it’s significant that direct control of the largest retail operations in the world is being handed from one women to another.

Furner lauded McKenna, saying: “She has done a fantastic job in many roles over the 27 years she’s been part of our company. She leaves her most recent role having delivered strong results and having transformed the business. It’s a different portfolio, better positioned for the future.”

Ditto for McLay. Furner noted: “The results Kath and our team have delivered at Sam’s speak for themselves. Her experience and passion to serve customers and members will take us to the next level.”

Christopher Nicholas moved to become president and CEO of Sam’s Club. He was previously executive vice president and chief operating officer of Walmart U.S.

And McMillon added, “Walmart’s got a deep bench, and we’ll keep going.”

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