Walmart (NYSE:WMT) isn’t going to suffer a growth hangover this year. The retailing titan this week projected that sales will rise in fiscal 2022 even after soaring last year due to pandemic-related customer shopping binges.
The new outlook also included higher earnings, although management is standing by its aggressive plans to pour resources back into the business this year.
Let’s take a closer look.
g.foolcdn.com/image/?url=https%3A//g.foolcdn.com/editorial/images/639588/grocery-stocking.jpg&w=1000&op=resize 1000w, g.foolcdn.com/image/?url=https%3A//g.foolcdn.com/editorial/images/639588/grocery-stocking.jpg&w=2000&op=resize 2000w”/>
Image source: Getty Images.
The main takeaway is that sales trends aren’t slowing as fast as most investors had feared they would. Yes, comparable-store sales growth decelerated to 5% in Q2 from 6% last quarter and 9% in the prior fiscal year. But that equates to 14.5% growth over the past two years, which is a much faster expansion pace than Walmart enjoyed before the pandemic.
That two-year rate was sitting at 16% last quarter, meaning there’s been no sharp pullback due to the lapsing of financial stimulus measures.
Customer traffic stayed in solidly positive territory this quarter, too, and management said the chain won market share in key categories including groceries, apparel, and home furnishings. “We had another strong quarter in every part of our business,” CEO Dough McMillon said in a press release.
Walmart did see some pressure from rising prices and higher costs for things like labor and shipping. Yet the retailer offset that headwind with savings in other areas. Overall, operating income margin rose by 50 basis points.
Several factors contributed to that win, including a tilt toward more premium products and soaring demand in the digital sales channel. E-commerce is now running at a $75 billion annual rate, up over 100% in the past two years. “We’re finding innovative ways to commercialize our data and build technology,” McMillon said. “We have a unique ecosystem of products and services designed to serve customers in broader, deeper ways.”
The outlook is brightening, mainly because Walmart is seeing no sign of a demand slowdown. In fact, comps accelerated during each month of the quarter, with July’s result setting the highest mark in Q2.
As a result, management lifted its 2022 outlook for a second straight quarter. Walmart now sees comps rising by between 5% and 6% in the U.S., with operating income increasing between 9% and 11.5%. Both of these metrics were upgraded from the prior forecast. The chain is now expecting slightly positive sales growth this year even following last year’s 8% spike.
McMillon and his team still plan to spend at least $14 billion on the business this year, with elevated spending likely to continue for several more years as it spends on projects to upgrade everything from its supply chain to its e-commerce platform and delivery networks.
Those initiatives were always highly likely to result in impressive returns for shareholders. The difference after this recent report is that investors probably won’t have to see a period of discouraging earnings metrics as they wait for Walmart’s capital spending to start paying off. Instead, the retail chain seems likely to see solid sales and profit gains, at least through the last half of 2021.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.