‘analysts are bullish on discounters that sell gasoline’

Walmart Inc (NYSE: WMT) is up 7.0% on Tuesday after the retail giant reported market-beating results for its fiscal second quarter and raised its earnings guidance for the full year.

Walmart Q2 results

• Net income printed at $5.15 billion versus the year-ago $4.28 billion
• Per-share earnings climbed to $1.88 from $1.52 in Q2 of FY22
• Adjusted EPS (excluding one-time items) stood at $1.77
• Revenue jumped 8.4% year-over-year to $152.86 billion
• Consensus was $1.62 of EPS (adjusted) on $150.99 billion in revenue
• eCommerce and advertising went up 12% and 30% respectively
• Walmart U.S. comparable sales up 6.5% were better-than-expected
• Sam’s Club comparable sales up 9.5% were shy of expectations

Discussing Walmart Q2 results on CNBC’s “Squawk Box”, Jharonne Martis – Director of Consumer Research at Refinitiv said:

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When we look at inventories, yes, they’re up compared to a year-ago. But they have slowed down from the previous quarter. That is a positive sign.

What else was noteworthy?

Other notable figures in Walmart Q2 results include a 1.0% increase in transactions at Walmart U.S. and a broader 9.8% increase at Sam’s Club. Cost of sales shot up 10.1%, resulting in a 70 basis points hit to operating income as a percentage of revenue.

Average ticket was 5.5% bigger than last year at Walmart U.S. but was slightly smaller (0.2%) at Sam’s Club, as per the earnings press release. Martis added:

Membership revenue at Walmart reached all-time high in Q2 of 2022. This year it increased 25.6% on top of that. It’s a very good sign; shows that middle-class consumer is looking for value and a Sam’s Club membership to save money at the pump.

Walmart’s guidance for FY23

For the full financial year, Walmart now forecasts a 9.0% to 11% hit to EPS versus up to 13% it had guided for last month. The retail behemoth remains committed to a 4.5% sales growth in fiscal 2023. According to Martis:

Analysts pulled by Refinitiv are most bullish on the discounters that sell gasoline. They’ve been raising those estimates even stronger in a time when they’ve been lowering all the other retailers.

Wall Street recommends that you buy Walmart stock that’s still down roughly 12% from its year-to-date high.