Walmart (WMT) Stock Rallies on Q2 Earnings Beat, Raised View (2024)

Walmart Inc. WMT delivered robust second-quarter fiscal 2025 results, wherein both the top and bottom lines grew year over year and surpassed their respective Zacks Consensus Estimate. Encouragingly, management raised its guidance for fiscal 2025. Shares of the company rallied more than 7% in the pre-market trading session on Aug 15.

The company experienced growth across all business segments, with rising store and club sales, expanding e-commerce, increased pickup options and accelerated delivery services. Additionally, newer ventures like the marketplace, advertising and membership have contributed to diversified profits, further reinforcing the resilience of Walmart’s business model.

Total revenues grew 4.8% year over year to $169.3 billion, which beat the consensus mark of $168.5 billion. On a constant-currency (cc) basis, total revenues climbed 5%. Revenues were backed by strength across all operating segments.

Global e-commerce sales surged 21% on store-fulfilled pickup & delivery and marketplace. The company witnessed a solid increase in membership income. WMT’s global advertising business advanced 26%.

The consolidated gross profit margin expanded 43 basis points (bps) to 24.4%, driven by Walmart U.S. and Walmart International. Pricing efforts, better e-commerce margins and the improved business mix backed the gross margin expansion. Adjusted operating expenses deleveraged 41 bps.

The adjusted operating income increased 7.2% year over year to $7.9 billion on the back of greater gross margin, higher membership income and lower e-commerce losses.

Walmart U.S.: The segment’s net sales grew 4.1% year over year to $115.3 billion. U.S. comp sales, excluding fuel, improved 4.2% due to transaction growth of 3.6%. The average ticket rose 0.6%. Sales growth was backed by strength in transactions and higher unit volumes in both stores and e-commerce channels.

WMT witnessed continued share gains fueled by higher-income households. While grocery and health & wellness saw higher comp sales, the general merchandise category remained flat. E-commerce boosted comps by 300 bps. E-commerce sales in the segment rose 22%, driven by the same factors that drove the overall company’s e-commerce sales.

As of the second quarter, Walmart U.S. had nearly 4,600 pickup locations and about 4,300 same-day delivery stores. The company remodeled 245 stores during the reported quarter. The operating income of the Walmart U.S. segment jumped 7.8% to $6.6 billion.

Walmart International: The segment’s net sales rose 7.1% to $29.6 billion. On a cc basis, net sales jumped 8.3%, driven by Walmex, China and Flipkart. Stores and e-commerce evenly contributed to the sales increase. The company witnessed strength in food and consumables, along with better growth in general merchandise.

During the quarter, Walmart introduced 12 new stores. E-commerce sales went up 18% due to the same factors that drove the overall company’s e-commerce sales. E-commerce penetration expanded across markets. The operating income, on a cc basis, grew 15.7% to $1.4 billion.

Sam’s Club U.S.: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 5.5%. The figure amounted to $20 billion (excluding fuel). Sam’s Club’s comp sales, excluding fuel, grew 5.2%. While transactions grew 6.1%, the average ticket fell 0.8%. Comp sales were driven by strength in food, as well as health & wellness. The company also witnessed increased dollar and unit market share in grocery and general merchandise categories.

The membership income increased 14.4% year over year in the quarter. The Plus penetration rate continued to rise. E-commerce fueled comps by 230 bps. E-commerce net sales jumped 22% at Sam’s Club U.S. The segment’s operating income totaled $0.6 billion, up 11.5% year over year.

Walmart ended the quarter with cash and cash equivalents of $8.8 billion and total debt of $47 billion.

In the six months that ended on Jul 31, 2024, WMT generated an operating cash flow of $16.4 billion and a free cash flow of $5.9 billion. In fiscal 2025, capital expenditures are likely to account for nearly 3-3.5% of net sales.

Walmart repurchased 33.4 million shares for $2.1 billion year to date. The company had $14.5 billion remaining under its share buyback plan.

Walmart raised its guidance for fiscal 2025. The company anticipates a generally steady consumer environment, along with ongoing pressure stemming from its diverse product mix and formats on a global scale.

WMT expects consolidated net sales growth of 3.75-4.75% (at cc) compared with 3-4% expected earlier.

Consolidated operating income is expected to increase 6.5-8% at cc, up from 4-6% projected before.

Net interest expenses are likely to escalate approximately $100 million compared with the prior estimation of $100-$200 million.

Walmart expects adjusted EPS for fiscal 2025 to be in the $2.35-$2.43 range, up from the prior guidance of $2.23-$2.37. The company recorded an adjusted EPS of $2.22 in fiscal 2024.

For the third quarter of fiscal 2025, the company anticipates consolidated net sales to increase 3.25-4.25% at cc. Consolidated operating income is expected to rise 3-4.5% at cc. Management anticipates adjusted EPS to be in the band of 51-52 cents.

Shares of this Zacks Rank #3 (Hold) company have risen 14.5% in the past three months compared with the industry’s growth of 5.7%.

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PriceSmart delivered an earnings surprise of 10.2% in the last reported quarter.

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DICK'S Sporting has a trailing four-quarter earnings surprise of 4.7%, on average.

Abercrombie & Fitch ANF, a specialty retailer, currently has a Zacks Rank #2. The Zacks Consensus Estimate for current financial-year sales and earnings suggests growth of 11.5% and 51.1%, respectively, from the year-ago reported numbers.

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