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Walmart Q2 2025 Earnings Highlights

by Team Lumida
August 17, 2024
in Equities
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Walmart delivered another strong quarter with sales and profit growth exceeding expectations, driven by broad-based strength across segments and continued e-commerce momentum.

Top 5 Key Takeaways

  1. E-commerce growth of 21% globally, with 22% growth in Walmart U.S., driving profitability improvements
  2. Continued market share gains, especially among upper income households
  3. Slight deflation in overall pricing, with food prices moderating
  4. Strong growth in alternative profit streams like advertising (26% growth) and membership
  5. Raised full-year guidance for sales and operating income growth

Summary

Walmart reported robust Q2 results, with total net sales growth of 4.9% on a constant currency basis and adjusted operating income growth of 7.4%. E-commerce sales grew 21% globally. Management highlighted strength across all segments and income cohorts. CEO Doug McMillon emphasized:

“We had another good quarter with strong sales growth and even stronger profit growth, exceeding our expectations. The team not only drove our short-term results, but they also continued to drive change, setting the stage for our future.”

Main Themes

  • Guidance: Raised full-year FY2025 outlook for sales growth to 3.75-4.75% and operating income growth to 6.5-8%
  • Economy: No signs of weakening consumer overall; slight deflation in pricing
  • AI: Leveraging generative AI to improve product catalog and customer experience
  • New initiatives: Expanded delivery catchment to include 15 million more homes
  • Market share: Gaining share across income cohorts, especially upper income households
  • Outlook: Cautiously optimistic about back-to-school and holiday seasons

Insights

Walmart is seeing significant benefits from its omnichannel strategy. E-commerce profitability is improving rapidly, with core e-commerce (excluding advertising) being the largest contributor to year-over-year operating income improvement. The company’s ability to offer multiple fulfillment options (in-store, pickup, delivery) is resonating with customers across income levels.

Market Opportunity

Walmart is expanding its addressable market by attracting more upper-income customers through improved convenience offerings like Walmart+ and faster delivery options. The company is also seeing strong growth in international markets, particularly in India and China, where e-commerce and membership models are driving double-digit sales growth.

Customer Behaviors

Customers are responding positively to Walmart’s value proposition across income levels. Upper-income households continue to drive the majority of market share gains, but the company is also growing sales and share among middle and lower-income households. Private brand penetration is increasing, and customers are engaging more with digital offerings like Scan & Go and on-demand delivery.

“Customers from all income levels are looking for value, and we have it.” – Doug McMillon

Capex

While specific capital expenditure figures were not provided, management emphasized continued investment in supply chain automation and technology. The company expects these investments to yield returns that will allow for increased return on invested capital each year.

Economy Insights

Walmart is not seeing signs of a weakening consumer overall. Sales trends have remained consistent throughout the quarter and into early August. However, management remains cautiously optimistic given broader economic uncertainties:

“While we have not seen any additional fraying of consumer health in our business, other economic data out there, as well as the state of affairs globally, would suggest that it’s prudent to remain appropriately cautious with our outlook.” – John David Rainey, CFO

Industry Insights

Walmart’s performance suggests that retailers with strong omnichannel capabilities and value propositions are well-positioned in the current environment. The company’s success in attracting upper-income customers while maintaining its core value-oriented customer base indicates that a broad appeal across income levels is possible with the right strategy.

Key Metrics

Financial Metrics:

  • Total net sales growth: 4.9% (constant currency)
  • Adjusted operating income growth: 7.4%
  • E-commerce sales growth: 21% globally
  • Advertising revenue growth: 26% globally, 30% for Walmart Connect in U.S.
  • Membership income growth: 23% globally

KPIs:

  • Walmart U.S. comp sales: +4.2%
  • Sam’s Club U.S. comp sales ex-fuel: +5.2%
  • International constant currency sales growth: 8.3%
  • Walmart U.S. e-commerce growth: 22%
  • Inventory: Down 2% year-over-year

“E-commerce sales grew about 20% for each segment and 21% overall.” – Doug McMillon

Competitive Differentiators

  1. Omnichannel capabilities: Seamless integration of in-store, pickup, and delivery options
  2. Scale and efficiency: Leveraging size for cost savings and improved delivery density
  3. Expanding ecosystem: Growing alternative profit streams like advertising and membership
  4. Supply chain automation: Improving efficiency and customer experience
  5. AI implementation: Using generative AI to enhance product catalog and search functionality

Key Risks

  1. Economic uncertainty: Potential for consumer spending slowdown
  2. Competitive pressure: Ongoing need to invest in pricing and convenience offerings
  3. International market volatility: Exposure to geopolitical and economic risks in key markets
  4. Supply chain disruptions: Potential for inventory management challenges
  5. Regulatory scrutiny: Possible antitrust or labor-related issues given the company’s size and market position

Analyst Q&A Focus Areas

Analysts focused on:

  1. Sustainability of gross margin expansion
  2. E-commerce profitability trajectory
  3. Consumer behavior across income cohorts
  4. Impact of automation investments on financial performance
  5. Outlook for holiday season and potential economic headwinds

Walmart Summary:

Walmart delivered a strong quarter, demonstrating its ability to execute well in a challenging environment. The company’s investments in omnichannel capabilities, supply chain automation, and alternative profit streams are paying off, driving both top-line growth and margin expansion. While management remains cautiously optimistic about the future, Walmart’s broad appeal across income levels and continued market share gains position it well for potential economic uncertainties. Investors should watch for continued progress in e-commerce profitability, the performance of international markets, and the company’s ability to maintain its value proposition in a potentially deflationary environment.

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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

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