Walmart's Results Suggest Consumer Health Is Stabilizing

On Thursday, Walmart Inc WMT reported its fiscal second quarter results, topping Wall Street estimates for both sales and profits. Based on the strength its half year results reflected, the largest U.S. retailer raised its full-year outlook. It is quite a contrast compared to the cautious Home Depot HD that warned of slow sales on Tuesday and investors loved what they heard with Walmart shares initially going 8% up upon the report’s release.

Fiscal Second Quarter Highlights

For the quarter ended on July 31st, Walmart reported revenue rose nearly 5% to $169.34 billion, surpassing LSEG’s estimate of $168.63 billion.  Chief Financial Officer John David Rainey noted that the rise in revenue is the result of selling more units as opposed to higher prices. Rainey also added that Walmart has been focused on pushing vendors to lower prices. 

Excluding fuel, U.S. comparable sales for Walmart rose 4.2% YoY. Also excluding fuel, Sam’s Club comparable sales rose 5.2%. Global e-commerce sales rose 21%, while U.S. alone reported 22% growth on the e-commerce front. On a YoY basis, transactions rose 3.6% and average ticket was up 0.6%.

Net income dropped to $4.5 billion, or 56 cents per share, while adjusted earnings per share of 67 cents also topped LSEG’s estimate of 65 cents.

Full Year Guidance

Walmart previously guided for net sales growth between 3% and 4% and adjusted earnings per share in the range between $2.23 and $2.37. While Home Depot warned of a pullback in consumer spending, Walmart now expects revenue growth between 3.75% and 4.75%, along with adjusted earnings between $2.35 and $2.43 per share.

Walmart gave hope of a turnaround in spending habits.

Along with July retail sales data, Walmart showed that consumers are shrugging off their fears as they still face of a challenging macroenvironment. What’s more important is that unlike Home Depot that warned of a consumer slowdown, Walmart provided hope that weakening retail spending could be coming to an end as its sales and earnings topped estimates. Retail sales were also much stronger than expected in July as they rose 1%, topping the consensus estimate of 0.4% and marking the best headline retail sales figure in more than two years. However, automotive sales contributed greatly to this rise, as without them, retail sales grew only 0.4%. While Home Depot showed that consumers are holding off home purchases and home renovation projects, these figures still suggest the beginning of a positive retail trend with Walmart continuing to benefit from value-seeking consumers. 

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