Walmart (WMT) earnings Q2 2023

Walmart on Tuesday said sales grew more than 8%, but profits tightened in the fiscal second quarter, as consumers turned to the discounter for groceries and essentials.

Shares rose more than 4% in premarket trading.

The retailer’s results surpassed analysts’ expectations, but echoed its profit warning last month, when Walmart said inflation-pinched shoppers were buying less high-margin discretionary merchandise like apparel as they spent more on necessities.

Walmart reiterated its forecast for the back half of the year, even as it sells through a glut of inventory. It expects same-store sales for Walmart U.S. to grow by about 3%, excluding fuel, for the second half of the year, or about 4% for the full year. It anticipates adjusted earnings per share will decline between 9% and 11% for the full year.

The news sent shares of retail rival Target about 3% higher in premarket trading, too. Target is set to report its latest quarterly results on Wednesday morning.

Some of Walmart’s sales gains came from inflation, which is driving up prices of food and other items. The retailer’s reputation as a discounter is also attracting more middle- and high-income shoppers, Chief Financial Officer John David Rainey told CNBC. About three quarters of Walmart’s market share gains in food came from customers with annual household incomes of $100,000 or more. 

He said Walmart also sees signs of a budget-strapped consumer who is trading down “in terms of quality and quantity.” For example, he said, shoppers are increasingly using credit more than debit, he said. They are opting for smaller packages of food and buying items like canned tuna and beans instead of deli meats and beef. 

“Clearly, they’re stressed from higher gas prices, higher food prices and even housing,” he said.

Here’s what the company reported for the fiscal second quarter ended July 31, compared with Refinitiv consensus estimates:

• Earnings per share: $1.77 adjusted vs. $1.62 expected
• Revenue: $152.86 billion reported vs. $150.81 billion expected

Walmart’s net income for the quarter rose to $5.15 billion, or $1.88 per share, compared with $4.28 billion, or $1.52 per share a year earlier. 

Same-store sales for Walmart U.S. grew 6.5% in the second quarter, excluding fuel, compared with the year-ago period. That was higher than the 5.9% growth that analysts expected, according to StreetAccount.

E-commerce sales rose 12% compared with the year-ago period and 18% on a two-year basis.

The company reported low double-digit comparable sales growth in grocery and high single-digit gains in health and wellness. Sales of general merchandise fell mid-single-digits, due to softness in electronics, apparel and home products, the company said.

Walmart’s inventory levels in the U.S. surged 25.6% from a year ago, which the company said was mainly due to the increased cost of goods and higher levels of general merchandise.

Both Walmart and Target issued warnings in recent weeks that they needed to discount some items to try to get them off of shelves before the all-important holiday season, which would pinch profits in the near term.

Walmart’s membership-based warehouse club, Sam’s Club, saw same-store sales growth of  9.5%, excluding fuel, slightly below the 10.1% expected, according to StreetAccount. Membership hit an all-time high, the company said.

As of Monday’s close, Walmart shares are down about 8% so far this year. Shares closed on Monday at $132.60, bringing the company’s market value to $363.48 billion.

Read the company’s earnings release here.

This story is developing. Please check back for updates.