Walmart (WMT) Investors Breathe Easier With Beat And Upside Guidance; Bodes Well For Other Retailers
2:04 pm Tuesday, August 16th, 2022
Walmart (WMT) investors are feeling relieved today after the retail giant bounced back from a rare miss in Q1 (Apr) to report a nice size beat in Q2 (Jul). And just as important, WMT offered good guidance for Q3 (Oct) and made some positive comments on the call. Because Walmart is so large and reports early in the retail reporting cycle, this report should help calm some nerves as we get earnings reports from other retailers over the next two weeks.
Walmart beat pretty handily on EPS and revs. Also, Walmart US comps (ex-fuel) grew +6.5% vs prior guidance of +6%. It was reassuring to hear on the call that Q2 finished on a stronger note than the company had anticipated. Granted some of this strong comp number was fueled by higher grocery prices driven by inflation, rather than higher unit sales. But it was still better than expected. Sam’s Club comps (excl fuel) were strong as well at +9.5%.
Sales were strong across all segments, particularly in food and consumables. Also, WMT said it is seeing a more pronounced consumer shift in terms of trade down activity. Instead of deli meats, customers are buying more hot dogs and canned tuna or chicken. Also, the private brand growth rate doubled in Q2 compared to Q1. Of note, WMT also said back-to-school season is off to a good start.
As we said in our preview, we thought that investors had already sort of written off Q2 as a bad quarter. As such, the focus would be on the Q3 guidance, which turned out to be pretty good. The midpoint of the EPS guidance was above analyst expectations and the revenue guidance of +5% was also better than expected. Walmart US comps (excl fuel) are expected to be +3%. We think that is good guidance considering it is lapping a robust +9.2% comp in the year ago period.
The key takeaways here are that Q2 came in above the low expectations set out when WMT guided lower last month. It was encouraging to hear that the quarter ended on a stronger note than expected. And more importantly, the Q3 guidance was pretty solid and not the doomsday some had feared it might be. The consumer is still facing some headwinds, namely inflation, housing concerns, rising rates and general economic unease. However, WMT seems to be managing quite well.
Finally, when you combine this report with a solid beat from Home Depot (HD) this morning, it makes us less nervous as we had into other retail earnings reports this week and next. Target (TGT) is up next with its report tomorrow morning. We would like to see similar numbers from them.
