Walmart Posted Better than Expected Results, but the Bar Was Low

Walmart Q2 FY2023 Results

In the aftermath of the poor Q1 report, the retail behemoth had slashed its projections for key aspects of its financials, for both the second quarter and the full Fiscal 2023 [1]. Apart from the volatile environment, this downgrade probably reflected an expectations-management effort, which were somewhat low going into today's results.

Revenues grew 8.4% in Q2 FY2023 (period ended July 31) from a year ago, more than the 7.5% forecast, to $152.9 billion, partially attributed to high inflation. Operating Income on the other hand, dropped by nearly 7% compared to Q2 FY2022, to $6.9 billion, but this constituted a significant improvement over the 13-14% decline projection. [2]

Walmart maintained its top-line guidance for 4.5% growth in the full FY2023, but upgraded its profit estimates. It now expects smaller declines in its Operating Income and Adjusted Earnings/share of 11%-13% and 9%-11% respectively.

The strong Revenue and profit decline – even if less that feared – are signs of an inflationary environment, since higher prices translate into increased revenues, but they erode the bottom-line.
Walmart's Gross Profit Rate dropped 132 basis points, much more than the 87 bps trimmed in the previous quarter, with the firm noting food and fuel prices in particular "created more pressure on margin mix and operating costs than we expected".

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This was evident in the results of Home Depot earlier in the day, which were very strong in general though. The home improvement retailer reported record sales Revenue of $43.8 billion in the second quarter of fiscal 2022 (period ended July 31) and record Net Earnings of $5.2 billion. Customer transactions however, dropped 3% compared to a year ago to $467.4 million, in another inflationary warning. [3]. Markets now await Target, which reports on Wednesday.

WMT.us jumped higher today, gaining more that 4% at the time of writing, as markets apparently liked the improved profitability guidance. The stock lost around 15% during the first half of the year, but the third quarter has started off on a good footing.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 16 Aug 2022 https://corporate.walmart.com/newsroom/2022/07/25/walmart-inc-provides-update-for-second-quarter-and-fiscal-year-2023

2

Retrieved 16 Aug 2022 https://s201.q4cdn.com/262069030/files/doc_financials/2023/q2/Earnings-Release-(FY23-Q2)_-final.pdf

3

Retrieved 01 Dec 2022 https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/press-release/q2-2022-earning-release.pdf

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