Earnings Results: Walmart stock jumps to an 8th-straight gain after profit pulls a classic ‘beat the guide down’

“A classic ‘Beat the Guide Down,’” said D.A. Davidson analyst Michael Baker. Since the Walmart’s warning was on July 25, the results suggest results for the last week were “exceptionally strong.”

Baker reiterated the buy rating he’s had on the stock for at least the past two years.

The stock powered up 5.1% to $139.37, the highest close since May 16 and the best one-day performance since it rose 6.3% on Sept. 1, 2020.

The stock has run up 11.0% amid an eight-day win streak, the longest such streak since the eight-day stretch that ended Oct. 25, 2021.

Net income for the quarter to July 31 rose to $5.15 billion, or $1.88 a share, from $4.28 billion, or $1.52 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $1.77 beat the FactSet consensus of $1.62.

Revenue grew 8.4% to $152.86 billion, above the FactSet consensus of $150.99 billion. Walmart U.S. sales rose 7.1% to $105.1 billion, topping the FactSet consensus of $104.4 billion, while Sam’s Club revenue jumped 17.5% to $21.9 billion to beat expectations of $21.2 billion. Read Walmart’s earnings preview.

There was some fear ahead of the results that high food inflation would take more of the customers’ wallet share, and hurt sales of higher-margin general merchandise. In the first quarter, grocery revenue accounted for 58.6% of total revenue, up from 55.2% the year before.

Those fears were realized, as gross margin contracted by more than one percentage point, but grocery sales were strong enough to boost sales results.

Consolidated gross margin contracted by 1.32 percentage points, to reflect increased markdowns and unfavorable shifts in sales mix.

“The rising costs of essential items and customers reprioritization of spending led to significant mix shifts in our business,” said Chief Financial Officer John Rainey on the post-earnings call with analysts, according to a FactSet transcript. “Grocery sales mix increased nearly 300 basis points [3.00 percentage points] whereas general merchandise sales mix decreased more than 350 basis points.”

Meanwhile, Walmart U.S. same-store sales increased 6.5%, beating the FactSet consensus for a 5.9% rise, due to strong grocery sales and higher average ticket size. Sam’s Club same-stores sales grew 9.5% but missed expectations of 10.1% growth.

Ecommerce sales were 12% better than a year ago, while the global advertising business soared 30%.

The number of transactions were up 1.0% at Walmart U.S. stores and up 9.8% at Sam’s Club, while average ticket climbed 5.5% at Walmart U.S. but slipped 0.2% at Sam’s Club.

“We’ve made good progress to reduce inventory,” said Chief Executive Doug McMillon on the post-earnings conference call with analysts, according to a FactSet transcript. “The aggressive approach we took to move through apparel in particular put financial pressure on us, but it helped relieve pressure on our stores and through our supply chain.”

Also read: Walmart customers are spending on food, and not much else, as inflation takes a toll.

Looking ahead, Walmart raised its fiscal 2023 EPS growth guidance to a decline of 9% to 11% from previous guidance of a decline of 11% to 13% provided in late July. For sales, the company affirmed it outlook for 4.5% growth.

Separately, the company said overnight that it reached an agreement with Paramount Global to offer subscribers of the Walmart+ membership program access to the Paramount+ streaming service, starting September.

Walmart’s stock was the best performer among Dow Jones Industrial Average components on Tuesday. The $6.77 price gain added about 45 points to the Dow’s price, while the Dow
DJIA,
+0.71%
climbed 239.57 points, or 0.7%.

Walmart’s stock has advanced 6.1% over the past three months, while the SPDR Consumer Staples Select Sector exchange-traded fund
XLP,
+1.13%
has tacked on 0.5% and the Dow has gained 4.6%.