Walmart Stock shrugs its shoulders despite having another strong quarter. Here’s why.

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Walmart

Exceeding earnings expectations and raising fiscal year guidance. The stock rose slightly in pre-market trading.

Wal-Mart Inc. (Stock ticker: WMT) reported adjusted earnings of $1.84 per share on revenue of $161.6 billion, an increase of 5.7%. Analysts had expected earnings per share of $1.71, on revenue of $160.2 billion, according to FactSet.

Wal-Mart raised its guidance for fiscal year 2024. The company sees adjusted earnings per share between $6.36 and $6.46, including a 5 percent impact of LIFO, an accounting measure. Previous guidance called for earnings to range between $6.10 and $6.20 per share, and analyst expectations had Walmart reporting earnings of $6.30 for the fiscal year.

“We’re in good shape with regard to inventory, and we like where we stand in the second half of the year,” CEO Doug McMillon said in a company statement.

Sales increased across Walmart’s US and Worldwide segments, but fell 0.3% at Sam’s Club. Comparable store sales, which measures growth in stores open for at least a year, grew for all three business segments, with Walmart US reporting 6.4% comparable store growth.

“WMT remains the top pick for us, and we believe this delivery should be enough for the stock to hold on to recent gains,” Oppenheimer analyst Rupesh Parikh wrote in a note.

Wal-Mart shares were up 1.2% in premarket trading Thursday. The movement appeared relatively muted given the retailer’s strength in the second quarter — particularly due to the competitor

Goal

(TGT) closed up 3% on Wednesday after posting a loss in revenue and downgrading guidance.

The problem may be that Wall Street has set the ceiling too high on earnings. The share’s gain of 12% this year has pushed the company’s valuation higher, meaning there was no room for error. And while there were a few errors in the report, the company’s outlook for the third quarter may have been a little softer than the Street had hoped. In the third quarter, earnings will be between $1.45 and $1.50 per share, Walmart said, in line with expectations of $1.49.

Walmart trades at 23.9 times forward earnings, slightly above the five-year average of 22.5 and well above competitors Target and

hook

(KR). From major retailers only

Costco wholesale

Asking (COST) has a higher rating of 36.1, according to FactSet.

Grocery, a longtime staple of Walmart, has given the company the upper hand over Target in the past few quarters. Consumer staples is a relatively small business for Target, which may be a positive for Walmart. Their lineup has always skewed in favor of groceries and household essentials. Meanwhile, Walmart’s focus on the essentials has also paid off as inflation makes consumers of all stripes more price sensitive. In past quarters, Walmart has grown market share in the grocery category across various consumer demographics, including high-income shoppers.

Walmart said Thursday that sales growth was largely driven by groceries this quarter, with the company continuing to gain market share in that segment. The company added that health and wellness also contributed to this.

Wal-Mart hosts a Contact the investors 8 a.m. ET. Investors will be looking for the company to explain how it plans to retain new customers once macroeconomic conditions improve, as well as broader commentary about Walmart’s customer base. Because of the retailer’s massive size and attractiveness among diverse income groups, the company is often regarded as a leader in consumer health in the United States.

Investors will also be looking for more details about recent shifts in Walmart’s management. On Wednesday, Walmart said Judith McKenna, CEO of Walmart International, will retire in January 2024. She will transition out of her role beginning Sept. 11.

Write to Sabrina Escobar at sabrina.escobar@barrons.com