It has been about a month since the last earnings report for Walmart (WMT Quick QuoteWMT - Free Report) . Shares have lost about 3.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Walmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Walmart Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Walmart reported second-quarter fiscal 2023 results. The company's adjusted earnings of $1.77 per share dipped by a penny from the year-ago period’s figure of $1.78. However, the metric surpassed the Zacks Consensus Estimate of $1.60.

Total revenues of $152.9 billion grew 8.4% and beat the consensus mark of $151.4 billion. On a constant-currency (cc) basis, total revenues climbed 9.1%. Revenue growth was partly aided by inflation. The consolidated gross profit margin contracted by 132 basis points (bps), primarily due to markdowns and a sales mix in the U.S. segment as well as a LIFO charge at Sam’s Club related to inflation. The gross margin at Walmart U.S. fell 106 bps due increased general merchandise markdowns, a mix shift toward grocery and increased cost inflation, somewhat offset by pricing.

The operating income at cc fell 6% to $6.9 billion. Consolidated operating expenses as a percentage of sales declined by 45 bps year over year due to solid sales growth, somewhat negated by wage investments. The company’s global advertising business soared about 30% due to Walmart Connect in the U.S. segment along with Flipkart advertising.

Walmart U.S.: The segment’s net sales grew 7.1% to $105.1 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 6.5% due to a 5.35% increase in the average ticket, with transactions rising 1% year over year. Comp sales were mainly driven by strength in food categories, the solid sales of private brands and an elevated average ticket. Comp sales grew across the grocery and health & wellness categories. The segment continued to see an increased market share in grocery.

E-commerce boosted comps by 100 bps. E-commerce sales in the segment rose 12%. On a two-year stack basis, e-commerce sales surged 18%. As of the second quarter, Walmart U.S. had 4,600 pickup locations and more than 3,800 same-day delivery stores. The company remodeled more than 180 stores during the reported quarter. The operating income of the Walmart U.S. segment declined by 6.7% to $5.7 billion.

Walmart International: The segment’s net sales rose 5.7% to $24.4 billion. Currency movements had a $1-billion adverse impact. On a cc basis, net sales jumped 9.9%. The company witnessed positive comp sales across its biggest markets – Canada, Mexico and China. The operating income, on a cc basis, grew 28.3% to $1.1 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 17.5% to $21.9 billion. Sam’s Club comp sales, excluding fuel, grew 9.5%. While transactions grew 9.8%, the average ticket rose 0.2%. Comp sales saw broad-based strength across most categories, mainly led by food and consumables. However, tobacco hurt comp sales.

The membership income climbed 8.9% in the quarter, reflecting strong membership trends, with a record total member count. The plus penetration rate continued to rise. E-commerce fueled comps by 170 bps. E-commerce net sales jumped 25% at Sam’s Club on a robust direct-to-home show and solid curbside performance. The segment’s operating income came in at $0.4 billion, down 35.3% year over year.

Guidance

Walmart now expects consolidated net sales growth of nearly 4.5% for fiscal 2023. Excluding divestitures, the metric is likely to grow roughly 5.5%. Management earlier anticipated consolidated net sales growth of nearly 4% at cc. Excluding divestitures, the metric was expected to grow nearly 4.5-5%. U.S. comp sales, excluding fuel, are likely to be roughly 4% now compared with the 3.5% growth expected before.  For the second half of fiscal 2023, U.S. comp sales, excluding fuel, are anticipated to rise roughly 3%.

Management now expects the consolidated adjusted operating income to decline 9-11%, reflecting better results in the second quarter. The metric was earlier expected to decline 11-13%. Excluding divestitures, management expects the consolidated adjusted operating income to decline 8-10%. Management envisions earnings per share (EPS) to decline 9-11% in fiscal 2023. Excluding divestitures, EPS is expected to fall by 8-10%.

For the third quarter of fiscal 2023, Walmart expects consolidated net sales growth of nearly 5%, including currency headwinds of about $1.3 billion. Comp sales growth at Walmart U.S. (excluding fuel) is likely to be 3%. The consolidated operating income is expected to decrease 8-10%, and the EPS is likely to decline 9-11%. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Walmart has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Walmart has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.