Walmart under-promised and over-delivered in the second quarter
Walmart is apparently capable of surprising itself. The retailer reported better than expected sales and earnings for its second quarter just weeks after lowering its forecast.
The chain posted a 6.5 percent increase in same-store sales with food revenues up in the mid-teens due to inflation. The retailer picked up market share even though, as CEO Doug McMillon said on the company’s earnings call, units were “slightly negative” to “about flat” for the quarter.
“We had our U.S. store manager meeting last week and, among other topics, we shared examples of items where we’re holding prices down or rolling them back. Those tend to be opening price point, private brand, food and consumables items,” said Mr. McMillon.
“We want to help families put meals on the table with great value in our other private brands to relieve the pressure they’re feeling. The quality, value, and convenience we offer make Walmart a smart choice, and we’re seeing more middle and higher-income shoppers choose us,” he added.
Walmart CFO John David Rainey said that private brand growth in food “doubled compared to Q1 levels.”
Mr. Rainey said that Walmart is also benefiting from stronger in-stock positions within grocery. “You remember this time last year, we had pockets of out-of-stocks that kept emerging. The only one that we really faced in the second quarter in a big way was baby formula, which is now improving.”
Walmart’s bottom line performance was supported by its advertising business, which grew 30 percent during the quarter.
Mr. McMillon said that the Walmart U.S. network continues to deliver positive results for advertisers.
“Improvements to search and our large first-party shopper data have led to performance improvements for our advertisers, both year over year and sequentially,” he said. “We’ve seen the number of active advertisers investing with us increase 121 percent over last year.”
Walmart also reported that it continues to scale its Go Local delivery service almost a year after it debuted.
“We passed one million deliveries so far with Go Local. We expect to have about 5,000 pickup locations by year-end and client satisfaction scores are strong,” said Mr. McMillon. “We continue to sign up larger-scale customers, and we’re making strides on the bigger unlock, which are small and medium-sized businesses. Our technology and expertise will help so many of these businesses grow while contributing to our operating margins over time.”
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DISCUSSION QUESTIONS: What is your takeaway from Walmart’s better-than-expected results from the second quarter as it relates to the national economy and retail? What roles do you see advertising, Go Local and other services playing in Walmart’s competitive and financial performance going forward?