Walmart Inc. surprised Wall Street with stronger-than-expected third-quarter sales as higher-income consumers turned to the retailer for value shopping amid soaring inflation.
The company also raised its full-year outlook with its earnings report Nov. 15, marking a sharp contrast with rival Amazon.com Inc., which recently warned of weak holiday sales expectations and slower online growth.
Walmart CEO and President Doug McMillon told analysts that the company's value proposition is resonating with more affluent customers, especially in the grocery category.
"Customers that came to us less frequently in the past are now shopping with us more often, including higher-income customers," McMillon said.
While Walmart gained market share in its grocery business across demographics in the third quarter, the growth was particularly pronounced for consumers with annual incomes exceeding $100,000. CFO John David Rainey said nearly three-fourths of the company's grocery gains came from this demographic.
Walmart's private brand penetration in food categories increased about 130 basis points, "reflecting customers' increased focus on quality products at value prices," Rainey said.
The company's online business also stayed strong in major markets including the U.S. and Mexico.
The Arkansas-based retailer said net sales for its third quarter reached $151.47 billion, up 8.8% year over year and beating analysts' estimates calling for revenue of $146.80 billion, according to S&P Capital IQ.
Walmart's total revenue, including Sam's Club memberships and other revenue, reached $152.81 billion in the third quarter. Walmart U.S. comparable sales from stores and clubs were up 8.2% in the quarter while e-commerce sales rose 16%.
Walmart's third-quarter adjusted earnings per share increased to $1.50, up from $1.45 in the year-ago period, surpassing the S&P Cap IQ estimate for normalized EPS of $1.32.
The company also reported a net loss of 66 cents per share, down from $1.11 per share a year ago.
Walmart lifted its full-year outlook, with expectations that consolidated net sales will grow 5.5% while adjusted EPS will decline 6% to 7%.
CFO Rainey said the company's guidance assumes that consumer spending could slow, especially in general merchandise categories, given persistent inflationary pressures in food and consumables. "Our guidance provides flexibility to compete in a promotional environment, accounts for pricing action to reduce remaining excess inventory and anticipates ongoing mix pressure," the executive said.
Walmart also made progress in improving inventory levels, which are up about 13% versus last year, while managing its general and administrative expenses.
Separately, Walmart on Nov. 15 disclosed that it had agreed to pay $3.1 billion to settle opioid lawsuits brought by several U.S. states and municipalities. The settlement follows similar agreements by CVS Health Corp. and Walgreens Boots Alliance Inc. The pharmacy owners have all faced criticism over how they prescribed opioids.
