Walmart Inc. (WMT Quick QuoteWMT - Free Report) reported robust third-quarter fiscal 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and increased year over year. A robust third-quarter show encouraged management to raise its overall guidance for fiscal 2023.

Strength in Walmart and Sam’s Club in the United States, along with Walmex and Flipkart, was the main top-line driver. Walmart U.S. continued to benefit from market share gains in grocery. The company witnessed the continued betterment of its inventory position, which is likely to keep improving.

Quarter in Detail

Walmart’s adjusted earnings of $1.50 per share increased from the year-ago period’s figure of $1.45. The metric surpassed the Zacks Consensus Estimate of $1.32.

Total revenues of $152.8 billion grew 8.7% and beat the consensus mark of $147.4 billion. On a constant-currency (cc) basis, total revenues climbed 9.8%. Revenue growth was backed by strength in all the company’s segments.

The consolidated gross profit margin contracted by 89 basis points (bps), primarily due to markdowns and a sales mix in the U.S. segment, a LIFO charge at Sam’s Club related to inflation and the timing of Flipkart’s annual event. The gross margin at Walmart U.S. fell 77 bps due to increased general merchandise markdowns and a mix shift toward grocery, somewhat offset by pricing.

The adjusted operating income at cc rose 4.6% to $6.1 billion. Adjusted operating expenses as a percentage of sales declined by 75 bps year over year due to solid sales growth and reduced costs associated with COVID-19.

WMT’s global advertising business soared more than 30% due to Walmart Connect in the U.S. segment, along with Flipkart advertising.

Segment Details

Walmart U.S.: The segment’s net sales grew 8.5% to $104.8 billion in the reported quarter. U.S. comp sales, excluding fuel, improved by 8.2% due to a 6% increase in the average ticket, with transactions rising 2.1% year over year.

Comp sales were mainly driven by strength in food categories, the solid sales of private brands, an elevated average ticket and increased store transactions. 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 80 bps. E-commerce sales in the segment rose 16%. On a two-year stack basis, e-commerce sales surged 24%. As of the third quarter, Walmart U.S. had 4,600 pickup locations and more than 3,900 same-day delivery stores.

The company remodeled more than 235 stores during the reported quarter. The operating income of the Walmart U.S. segment jumped 4.8% to $5.1 billion.

Walmart International: The segment’s net sales rose 7.1% to $25.3 billion. Currency movements had a $1.5-billion adverse impact. On a cc basis, net sales jumped 13.3%.

The company witnessed double-digit sales growth in Walmex and Flipkart. The operating income, on a cc basis, grew 3.2% to $0.9 billion.

Sam’s Club: The segment, which comprises membership warehouse clubs, witnessed a net sales increase of 12.8% to $21.4 billion. Sam’s Club’s comp sales, excluding fuel, grew 10%. While transactions grew 4.8%, the average ticket rose 4.9%. Comp sales saw broad-based strength across most categories, mainly led by food. However, tobacco hurt comp sales.

The membership income climbed 8% 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 120 bps.

E-commerce net sales jumped 20% at Sam’s Club on a robust direct-to-home show and solid curbside performance. The segment’s operating income came in at $0.6 billion, up 18.3% year over year.

Other Financial Updates & Developments

Walmart ended the quarter with cash and cash equivalents of $11.6 billion, long-term debt of nearly $34 billion and total equity of $80.1 billion.

Year to date, WMT generated operating cash flow of $15.7 billion and incurred capital expenditures of $12.1 billion, resulting in free cash flow of $3.6 billion. The company allocated $1.5 billion for dividend payouts and $3 billion for share buybacks during the reported quarter.

Following the third quarter, management approved a new share buyback program worth $20 billion. The new buyback plan replaces the current authorization, which had about $1.9 billion remaining at the third-quarter end.

Guidance

Based on a solid third-quarter show, management raised its guidance for fiscal 2023. Walmart now expects consolidated net sales growth of nearly 5.5% for fiscal 2023. Excluding divestitures, the metric is likely to grow roughly 6.5%.

Walmart expects currency headwinds of nearly $4.1 billion in the fiscal. Management earlier anticipated consolidated net sales growth of nearly 4.5% at cc. Excluding divestitures, the metric was expected to grow nearly 5.5%. U.S. comp sales, excluding fuel, are likely to be roughly 4% now compared with the 4% growth expected before.  

Management now expects the consolidated adjusted operating income to decline 6.5-7.5%. The metric was earlier expected to decline 9-11%. Excluding divestitures, management expects the consolidated adjusted operating income to decline 5.5-6.5% now compared with the prior projection of an 8% to 10% decline.

Management envisions earnings per share (EPS) to decline 6-7% in fiscal 2023 compared with the 9% to 11% decline expected before. Excluding divestitures, the EPS is expected to fall by 5-6% compared with the earlier view of an 8% to 10% decline.

For the fourth quarter of fiscal 2023, Walmart expects consolidated net sales growth of nearly 3%, 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 growth is expected between a decline of 1% to an increase of 1%. The adjusted EPS is likely to decline 3-5%.  

Walmart currently carries a Zacks Rank #3 (Hold). Shares of the company have declined 0.8% in the past three months against the industry’s growth of 1.5%.

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