walmart

Walmart (NYSE: WMT) stock is trading higher in US premarket price action today after the company reported better than expected earnings for its fiscal second quarter of 2023. Its guidance was also not as bad as markets feared.

Home Depot also posted better than expected earnings but the stock is trading slightly lower after reporting a fall in customer transactions. Its revenues from builders meanwhile rose. This week, we’ll also get the quarterly earnings from Lowe’s and Target. The earnings are coming amid fears of a US recession. The world’s largest economy contracted in both the first and second quarters of 2022.

Last month, Walmart also warned of a slowdown in sales of discretionary products amid the spiraling inflation. It had then said, “The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half.”

Walmart reported revenues of $152.86 billion in the quarter which was up 8.4% YoY. In constant currency terms, the revenues increased by 9.1%. Its comp sales, which is a key metric for retail companies, increased 6.5% YoY in the US during the quarter. Comps also increased in the international markets with China, Mexico, and Canada reporting double-digit growth.

Walmart’s advertising revenues also increased by 30% in the quarter led by Walmart Connect in the US and Flipkart in India. Walmart had acquired Indian e-commerce company Flipkart and now competes with Amazon to grab a slice of the retail market in the world’s second most populated country.

Incidentally, Amazon’s advertising business has also been booming even as its e-commerce sales have slowed down amid the lower retail spending.

Amazon’s Ad Sales Have Boomed, Analysts See Stock as a Buy

Amazon’s Q2 2022 advertising revenues of $8.76 billion surpassed analysts’ estimates of $8.65 billion. The company’s earnings and guidance pleased markets and the stock soared over 10% after the earnings release.

After the Q2 earnings beat several, Wall Street analysts issued bullish notes and advised buying Amazon stock. JPMorgan raised its target price from $175 to $185 while Deutsche Bank raised its from $155 to $175. Goldman Sachs and Piper Sandler also raised Amazon’s target price by $5 to $175. Coming back to Walmart, its adjusted EPS of $1.77 was also ahead of the $1.62 that analysts were expecting.

Commenting on the earnings, Doug McMillon, Walmart’s CEO said, “We’re pleased to see more customers choosing Walmart during this inflationary period, and we’re working hard to support them as they prioritize their spending.”

He added, “The actions we’ve taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery put pressure on profit margin for Q2 and our outlook for the year.”

Meanwhile, Walmart maintained its guidance for the back half of the year despite multiple headwinds. It forecast a 3% comp sales growth in the US in the second half after excluding for volatile fuel sales. Gas prices in the US have whipsawed this year but have come off their 2022 highs, providing respite to the average consumer.

Walmart returned $4.9 billion to stockholders in the quarter of which $3.3 billion were stock repurchases and the remaining dividends. The company’s dividend yield is just about 1.7% which might not sound too attractive to investors craving for high dividends.

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