Walmart Q2 earnings shine amid cooling inflation: Stock price rallies as full-year guidance holds strong
In a key development for retail and macroeconomic trends, Walmart’s Q2 earnings report showcased strong performance, highlighting the resilience of the retail giant amid a backdrop of cooling inflation in the United States. The report also reaffirmed the company’s optimistic full-year guidance, providing insights that could shape the retail and consumer landscape moving forward.
Walmart Q2 Earnings Beat Expectations
Walmart’s Q2 FY25 earnings underscore the retailer’s resilience in a shifting economic landscape. The company reported total revenue of $169.3 billion, marking a 5.0% year-over-year increase, driven by robust growth in both U.S. and international markets. E-commerce sales surged 21%, supported by the growing demand for pickup and delivery services, as well as a thriving marketplace.
The macroeconomic backdrop has been favorable, with U.S. inflation stabilizing. The latest Consumer Price Index (CPI) for July 2024 indicated a 2.9% year-over-year increase, reflecting continued disinflation from the peaks of 2022. This trend has boosted consumer confidence, allowing for more discretionary spending. Walmart effectively leveraged this environment by maintaining competitive pricing and offering value, leading to market share gains, particularly among higher-income households.
Comparable U.S. sales rose by 6.4%, fueled by strong performance in grocery and health & wellness categories. Gross profit margins improved by 43 basis points, thanks to better pricing strategies, enhanced e-commerce profitability, and favorable product mix shifts.
Looking ahead, Walmart raised its full-year guidance, now expecting net sales growth of3.75% to 4.75%, up from its previous range of 3.0% to 4.0%. Adjusted operating income is projected to grow between 6.5% to 8.0%, reflecting the company’s confidence in ongoing operational efficiency and strategic investments.
Stock market reaction
The market’s response to Walmart’s Q2 results has been notably positive. Following the earnings release, Walmart’s stock rose by 1.4%, continuing a year-to-date gain of 13.6%, outperforming the S&P 500’s 2.7% increase over the same period. The strong performance, coupled with raised guidance for FY25, boosted investor confidence, leading to price target upgrades from analysts. Citigroup has raised Walmart’s price target to $180 from $174, citing strong results across all segments and a positive outlook for the remainder of the year.
Walmart’s guidance for FY25 projects net sales growth of 3.75% to 4.75%, up from the previous range of 3.0% to 4.0%, and an adjusted operating income increase of 6.5% to 8.0%. Investors view this upward revision as a sign of the company’s robust positioning amid economic shifts.
As inflation shows signs of cooling in the U.S., consumer behavior is shifting. With grocery prices stabilizing, customers are returning to more discretionary spending, albeit cautiously. Walmart, known for its focus on value, capitalized on this environment. The company reported a solid increase in both traffic and sales, with grocery revenue leading the way—an area where Walmart continues to dominate the market. Grocery, a key driver for Walmart, grew not just in sales but also in market share, reflecting its ability to attract both low and middle-income consumers seeking better deals as inflationary pressures ease. This aligns with data indicating that Walmart’s comparable sales rose by over 6%, exceeding Wall Street estimates.
