6 Things I Learned From Walmart’s Q3 2022 Earnings Call

Walmart is the gorilla of discount retailers. Its mission is easy to understand: to save people money so they can live better. With wage growth not keeping pace with high inflation, the time is now for Walmart to gain market share and increase sales.

And its third quarter results proved it is doing exactly this:

  • Third quarter revenue was up by 8.7% to $152.8 billion
  • Operating income increased by 3.9% to $6.0 billion
  • GAAP EPS were $0.66, and adjusted EPS was $1.50 versus market expectations of $1.31

Here’s what I learned from Walmart’s third quarter earnings call.

Sales in the U.S. outstripped analysts’ expectations

Walmart’s U.S. business has grown sales and market share, with the quarter’s outcome beating analysts’ forecasts by a big margin. Estimates had centered on 3.6% growth in sales. The actual figure was an astounding 8.2% increase (excluding fuel).

  • Average ticket size increased as did the number of transactions
  • Every segment delivered good sales results, though some softness was experienced in electronics, home, and apparel

Increased market share and better inventory management is compensating for lower margins

Margins are under pressure at Walmart, but this is by design rather than accident. The company has aggressively pursued a strategy to increase market share by continuing to offer great value-for-money shopping.

Executive Vice President and CFO John David Rainey noted that consolidated gross margin rate decreased by 89 basis points. However, the rate of decline improved from the second quarter.

  • Inventories are up by 13% year-on-year, a 10%+ improvement on the second quarter. Most of this increase has been driven by inflation.
  • Private brand penetration in food categories increased by 130 basis points during the quarter.

Sam’s Club is growing sales fast, too, driven by value for money

Sales at Sam’s Club also beat expectations. Comparable sales grew 10% versus the consensus forecast of 8.7% (excluding fuel and tobacco). While Walmart doesn’t share membership numbers, it did disclose a sizeable hike in membership income.

  • Membership income increased by 8% with membership hitting an all-time high
  • Over two years, sales at Sam’s Club have increased by more than 25%
  • Average ticket size at Sam’s Club increased by around 5%
  • Sam’s Club operating income increased by more than 18% when fuel is included

International net sales soar above $25 billion

Another bright spot during the quarter was Walmart’s international business. Net sales increased by 7.1% to $25.3 billion, despite a negative currency effect of $1.5 billion. Constant currency sales in Walmart International increased by more than 13%. The company is beginning to see the benefits of the diversification work it has been conducting for the last few years.

  • Walmex grew comparable sales by 11.7%
  • In China, sales were up by 5.6%
  • Operating income increased by 3.2% in constant currency

E-Commerce penetration and sales are roaring

13% of Walmart’s total sales now begin digitally. At Walmart International, this number is already at 20%.

On a constant currency basis, e-commerce sales were up by an incredible 46%. This was helped by the earlier timing of Flipkart’s Big Billion Days event. In China, e-commerce sales grew by 63% to impact 41% of total sales there.

  • E-commerce accelerated sequentially to 16% growth, even as store transactions continued to grow.
  • On Walmart.com, there are now around 370 million SKUs (stock keeping units)
  • Walmart can now reach 84% of all U.S. households from 10,000 pick-up points across 50 states
  • Every major market delivered positive comparable sales

Growth of market share and providing value for money comes at a cost

Walmart has had a good start to the fourth quarter. However, management expects that consumer spending could slow, and that the company will need to be proactive in shifting inventory (meaning it will need to further reduce prices). In addition, it will continue to pursue its strategy of growing market share.

President and CEO of Walmart U.S. said, “… The majority of our share gains in the last quarter have come from high-end customers. So, we want to be ready to serve customers with great quality, great value private brand items.”

The company expects net sales growth of around 3% in the fourth quarter, with operating income between a range of -1% to +1% year-on-year. For the full year, Walmart expects net sales growth of around 5.5%, and EPS on an adjusted basis to decline around 6% to 7%.

The bottom line

These results took the market by surprise, and the share price reacted by posting a 7% rise on the day of the earnings report. The company is attracting high-income shoppers, increasing its e-commerce business, improving its average ticket size, and growing its number of transactions.

If the company is right and inflation continues to outpace wages, there is no reason why Walmart should not continue to attract more shoppers and increase its sales at least in line with its guidance.

Loved this? Spread the word