Walmart earnings smash forecasts as low prices reel in consumers

Updated at 7:31 am EDT

Walmart  (WMT) - Get Free Report posted stronger-than-expected second quarter earnings Thursday, and boosted its full-year profit forecast, as the retail giant's lower-priced products attracted value-focused shoppers amid a broader pullback in discretionary spending.

Walmart said adjusted earnings for the three months ended in July came in at $1.84 per share, up 4% from the same period last year and well ahead of the Wall Street consensus forecast of $1.70 per share. 

Group revenues, Walmart said, were up 5.8% to $161.63 billion, again topping analysts' estimates of a $160.1 billion tally. U.S. same-store sales were up 6.4%, the retailer said, well ahead of the Street's 4.5% forecast.

Operating income improved 6.7% to $ 500 million, Walmart said, with gross margins rose 50 basis points, even amid the rise in lower-margin grocery sales, with "encouraging" growth in general merchandise sales.

Looking into the second half of the year, Walmart said it sees earnings in the region of $6.36 to $6.46 per share, improving it previous forecast of of between $6.10 and $6.20 per share, with net rising rising between 4% and 4.5%.

"We had another strong quarter. Around the world, our customers and members are prioritizing value and convenience, said CEO Doug McMillon. "They’re shopping with us across channels — in stores, Sam’s Clubs, and they’re driving eCommerce, which was up 24% globally. Food is a strength, but we’re also encouraged by our results in general merchandise versus our expectations when we started the quarter." 

"Our associates helped deliver increases in transaction counts and units sold, and profit is growing faster than sales," McMillon added. "We’re in good shape with inventory, and we like our position for the back half of the year.” 

Walmart shares were marked 1.4% higher in pre-market trading immediately following the earnings release to indicate an opening bell price of $161.48 each.

The near-term forecast boost, as well as the stronger-than-expected topline growth, contrasts sharply with Walmart's smaller rival Target TGT, which focuses on higher-end items and a wealthier customer base.

Target posted stronger-than-expected second-quarter earnings Wednesday, but slashed its full-year profit forecast as American consumers trim discretionary spending in the face of inflation pressures.

Analysts expect consumers to struggle with rising gas prices and soaring mortgage rates. They also face the end of a moratorium on student loan payments, a factor that could take some $100 billion out of retail spending over the coming year.

Late Wednesday, Walmart unveiled a major executive change with the promotion of Kathryn McLay to CEO of its international business following the retirement of long-time industry veteran Judith McKenna.

McLay, 49, who previous ran Walmart's Sam's Club division, will assume the new role on September 11, the company said.

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