Walmart's Sales Show Consumers Aren't Afraid Of Delta

Walmart WMT logged another quarter of rising U.S. sales with both sales and profits exceeding Wall Street's estimates. It turns out that store visits offset slower online growth as customers flocked to stores for items like luggage, party supplies and apparel and classroom items as they were "coming out of hibernation".

Physical Vs Online Shopping

Its rival Amazon.com Inc. AMZN also reported a slowdown in e-commerce growth for the quarter that ended in June, despite it having moved the date of its annual Prime Day shopping event up from the third quarter. It seems that despite the benefits provided by technology, it is not powerful enough to replace the physical experience.

Fiscal Second Quarter figures

For the quarter ended in July, revenue rose 2.4% to $141 billion which is Walmart's highest quarterly revenue ever outside of the holiday season. However, net income was down 34% from a year ago when it booked a gain on investment as it translated to $4.28 billion. Excluding such items, adjusted profit amounted to $1.78 a share, beating $1.57 expected by FactSet.

U.S. profits got a lift from administering Covid-19 vaccines and lower Covid-related spending, but they were offset by higher supply chain costs and wage increases as Walmart is US' largest private employer with around 1.6 million workers. To navigate a tight labor market, it gave special bonuses and temporary pay rises.

Comparable sales, those from U.S. stores and digital channels operating for at least 12 months, rose 5.2% compared with the same period last year. U.S. E-commerce sales rose 6% from a year ago, but both online and offline growth slowed down compared to earlier in the year despite sales being boosted by government stimulus dollars and a generally strong U.S. economy, with them increasing each month of the quarter, with July being the strongest.

More shoppers came to Walmart stores, with U.S. transactions up 6.1% during the quarter, but they spent slightly less per visit, more precisely around 0.8% less versus the same period last year. During the pandemic, they visited stores less frequently as they moved online, but spent more per each visit. Growth of sales at stores and online have slowed, however, this is a tough comparison due to the health crisis.

Guidance

For the fiscal year, continued sales gains are expected for both the back-to-school and holiday quarters. U.S. same-store sales are expected to rise 5% to 6% for the year as Walmart captured market share from smaller players in the grocery business, its main source of revenue, after losing some of it earlier during the pandemic. The discounter confirmed it is on track to generate $75 billion in annual e-commerce sales and sharpened its forecast for the year, expecting earnings per share in the range from $6.20 to $6.35.

An Optimistic Outlook Based On Walmart's Strength

Executives are monitoring the Delta variant closely as Covid cases rise, but it has not seen a change in customers' shopping patterns. At a time when retailers are navigating rising costs, supply setbacks, and rising cases of Covid-19, Walmart's huge size has helped it navigate supply chain challenges and inflation pressure.

It was able to charter its own vessels to import goods and secured supplies earlier, so it is prepared for the third and fourth quarters. By selling more goods such as groceries, Walmart can keep its price increases modest. At the end of the day, Walmart has something that Amazon doesn't – physical stores and the world seems to have missed the physical part of living, despite the benefits provided by the digital way.

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