Walmart performs better than anticipated in Q2

Date : 16 August 2022

Oliver Butterworth

Senior Analyst

Last month, Walmart announced it had lowered its projected sales for Q2 and the rest of 2022. Net sales were expected to be up by around 7.5% for the quarter, with US comp store sales expected to be up around 6%, but itsQ2 results surpassed its expectations.

However, its gross profit continues to face pressure from higher-than-usual levels of mark down activity, which it has employed to clear through excess inventory. We review its performance and outlook for Q3.

Walmart’s Q2 key numbers

  • Walmart's total revenue in Q2 increased by 8.4% to $152.9 bn, representing an additional $11.8bn
  • Sales in its US stores increased by 7.1%, with Sam’s Club up 17.5%.
  • US ecommerce sales increased 12%, up 18% on a two-year stacked basis
  • US comp store sales increased by 6.5%, with average ticket up 5.5% and transactions up by 1%
  • Sam’s Club comp sales (ex-fuel) were up 9.5%
  • International net sales increased by 5.7% ($1.3 bn)
  • Operating income decreased by 6.8% to $6.9 bn

Strong food sales drove impressive US performance

Strong comps in food and consumables led to market share gains in Q2. Food sales were particularly strong, with growth in the mid-teens, and the average ticket size increasing. However food volumes were slightly negative. Against the inflationary backdrop, growing numbers of customers are switching to Walmart’s private label food brands, evidenced by its private label growth rates doubling in Q2 versus the previous quarter. The retailer is also holding prices down and rolling others back, especially for opening price points and private label items, to reinforce its value credentials. Sales for general merchandise were comparatively weaker, particularly in the categories of electronics, apparel and home. The heavier mix of sales in food and consumables in many of its markets pressurised margins.

Performance supported by continued ecommerce growth

Ecommerce sales were up 12% year-on-year (YoY), with stronger made through, including its marketplace. Online sales were supported by the usage of its pickup (curbside collection) and home delivery services, as well as an increase in Walmart+ members. Plans to add a streaming service should boost membership numbers going forward. The retailer is focusing on getting products to customers faster and reducing the cost of deliveries through significantly increasing the number of orders fulfilled by stores. It has increased its volume of online orders by 40% year-on-year.  Walmart also continues to grow its Go Local delivery services, with over 1m deliveries completed since its launch last year.

Q2 saw highest growth of new Sam’s Club members in recent years

Walmart reported another strong quarter for Sam’s Club and the banner delivered its 10th consecutive quarter of double-digit comp growth. Successful, membership campaigns have helped the retailer to grow its total members by almost 9% over the last year, adding more new members in Q2 than any other quarter in recent years. The number of transactions increased by 9.8% in the quarter, and the number of Sam’s Club Plus members continues to rise. An increasing number of Sam’s Club customers are leveraging its omnichannel services. Ecommerce sales grew by 25% in the quarter, with strong contributions from both curbside and home deliveries. 

Double-digit comp sales recorded in three largest international markets

Despite currency headwinds negatively effecting results by around $1 bn, each of Walmart’s three major international markets (Mexico, China and Canada) delivered positive, double-digit comp sales, with Mexico and China leading the way. It international markets saw impressive ecommerce sales growth of 15% (constant currency), despite tough year-on-year comparatives.

China’s comp sales growth of 14.1% was driven by the strong sales growth in Sam’s Club, as well as an increase in online food sales. Total ecommerce sales in China grew by an impressive 77% and 152% on a two-year stacked basis. In Mexico, comp sales growth of 10.8% was driven by the performance of its Bodega and Sam’s club banners, and to a lesser extent ecommerce sales (+18% net). Canada saw comp sales increase 10.3%, although ecommerce sales were down 9% as the overall market contracted.

Looking ahead to Q3

For its US business, Walmart expects to grow its net sales by about 5% in Q3, with comp sales growth of about 3%. For the fiscal year, it expects net growth of about 4.5%, including comp sales growth of 4%. For the mid-to-long term, its strategy remains focused on the automation of its supply chain, improving ecommerce and omnichannel capabilities, and diversifying its portfolio with high margin products and services.  What marks out Walmart as a leader to watch in this space is how it is taking a global approach with many of these, including marketplace and fulfillment services, digital advertising and healthcare.

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