The retail giant announced Tuesday that its grocery sales grew 6% or about $2.6bn year-over-year and $5.5bn on a two-year stack in its second quarter ending July 31. This helped to drive up the company’s US total revenues 5.3% to $98.2bn and overall revenue 2.4% to $141bn – beating out expectations it would hit $137.17bn in overall revenue in the period.
The strong turnout also allowed the company to raise its guidance for the year with consolidated net sales now expected to increase 6% to 7% versus prior guidance of low- to mid-single digits, and operating income to increase 11.5% to 14% rather than the previously predicted high-single-digit growth. Full year earnings per share is now expected to be in the range of $6.20 to $6.35.
Broad product mix, strong inventory help keep prices down
While Walmart’s grocery segment benefited from “modest ticket inflation,” CEO of Walmart US John Furner touted the company’s ability to keep prices low and value high as a key contributing factor to the business’ success and ability to gain market share in grocery in Q2.
He explained that Walmart has seen some inflation in the low-single digits, but it was able to keep price value above where it was before the pandemic by leveraging its product mix to drive business across apparel, home, general merchandise and food, and by maintaining a strong inventory that will allow it to maintain price and position well into the coming year, he said.
By holding prices down and value high, Furner stressed multiple times that Walmart was able to drive unit growth faster than dollar share in grocery – indicating the retailer’s ability to “position ourselves well in terms of retail value for the consumer and play a key role in keeping inflation down the country.”
Walmart also was able to gain grocery market share and drive low-teens growth on a two-year stack across food categories because consumers felt more confident visiting stores in the last quarter than they did earlier in the pandemic.
Last year, Walmart lost some business to smaller or more convenient stores as shoppers prioritized speed and the ability to socially distance while buying groceries. That began to shift last quarter though with Walmart president and CEO Douglas McMillon noting that people began shopping with the retailer more in store than online.
“As that shift occurred, we gained market share in grocery,” he said.
He was quick to defend the e-commerce business, though, adding: “Even as e-commerce growth slowed we layered on top of tremendous growth last year,” so that “we feel good about two-year stacks of comp sales and e-commerce growth.”
Walmart is building on consumer desire for omnichannel shopping by piloting at Sam’s Club a self-service Scan & Go and Scan & Ship service and by building out its buy online pickup in store options, CFO Brett Biggs said.
Furner also attributed the grocery business’ success to Walmart’s strong supply chain network, which ran “record volumes” week after week to keep high volumes in stores.
Biggs added that investments in Walmart’s fresh department immediately before the pandemic also helped lift grocery sales over the past year. In November 2019, the company launched its Produce 2.0 initiative, which improved the presentation and capacity of stores’ fresh produce segments.
“From an in-stock point of view, its been one of the bright spots in terms of us being able to get product and display it well,” he explained. “It is one thing to stay in stock on Corn Flakes. It’s another to merchandise fresh. And the teams have done a nice job during this period.”
Based on this quarter’s performance and strong start to Q3, Walmart executives anticipate strong ongoing performance in grocery in the coming quarters.