Walmart Earnings: Low Prices Resonate With Consumers as the Retailer Posts Strong Top-Line Growth

Walmart Stock at a Glance

• Fair Value Estimate: $145
• Morningstar Rating: 2 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

Walmart Earnings Update

Wide-moat Walmart WMT delivered solid second-quarter results, posting robust growth in comparable sales and operating profit, as the retailer’s low-price value proposition continues to resonate with consumers. In response, management raised its fiscal 2024 adjusted earnings per share guidance by a mid-single-digit percentage to a range of $6.36-$6.46.

Given Walmart’s dominant position in high-frequency categories such as grocery, we believe the retailer is well positioned to navigate an uncertain economic environment. We maintain our fair value estimate of $145 per share.

Walmart U.S. delivered 6.4% growth in comparable sales (excluding fuel), including a nearly 3% increase in transaction volume during the quarter. The retailer’s grocery category posted high-single-digit percentage sales growth, while health and wellness delivered growth in the high teens—more than offsetting a pullback in discretionary categories.

Walmart’s Resilient Top Line

Domestic gross margin expanded by 40 basis points and operating margin modestly improved to 5.5% as a normalization in inventory levels reduced the need for promotional destocking. However, a 240-basis-point shift in sales mix toward lower-margin product categories weighed on further expansion—a dynamic we expect to persist in the near term. Still, we expect the firm’s top line to remain resilient as its “everyday low price” mantra continues to attract consumers across income levels amid a precarious economic backdrop.

Sam’s Club delivered mid-single-digit comparable sales growth (excluding fuel), because of an uptick in both transactions and average ticket. The brand also saw a mid-single-digit increase in its member count. Internationally, Walmart’s sales increased by a double-digit percentage amid robust growth in Mexico, China, and India. We look favorably upon Walmart’s recent divestments of ailing international operations in developed markets and believe its current international portfolio is exposed to markets with more attractive growth prospects.