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Walmart (WMT +6.5%) is higher after reporting Q2 (Jul) results. The retail giant beat on EPS and revenue although the upside for both was smaller than typical. It also issued downside EPS guidance for Q3 (Oct) and while Q3 revenue guidance was in-line, the mid-point was a bit light. The highlight was WMT raising FY25 EPS and revenue guidance by more than the Q2 upside, which we read as higher confidence about Q4 (Jan) given that the Q3 weakish guidance.

• Q2 sales, operating income, and EPS all exceeded the top end of prior guidance. On the call, WMT said it has not been experiencing a weaker consumer overall. In the US, for both Walmart and Sam's Club, WMT says comp sales were fairly consistent throughout the quarter. Food continues to be strong, but it was encouraging to see improvements in general merchandise. Also, its US Health and Wellness business in Walmart and Sam's Club saw strong comps due to sales of GLP-1 drugs.
• Its Walmart US segment performed well with comps (exc fuel) up +4.2%, up from +3.8% in Q1. We think this strong comp is a key reason why the stock is higher. Recall in our preview we noted some recent comments from WMT that it said every quarter was not going to be as good as Q1, and that the current quarter would be its most challenging comp for the year (lapping +6.4%). We think investors are pleased with this comp given WMT's cautious comments.
• Comp sales reflected strength in transaction counts and unit volumes, across both stores and eCommerce channels. WMT said that its value-convenience proposition continues to resonate with customers and members. WMT also noted it saw share gains across income cohorts primarily driven by upper-income households. Also, Walmart Connect advertising sales grew a healthy 30% on strong growth in advertiser counts, including marketplace sellers.
• Sam's Club US comps (excl fuel) had been trending lower in recent quarters: +7.0%, +5.5%, +3.8%, +3.1% but they have rebounded in the last two quarters to +4.4% in Q1 and now +5.2% in Q2. Comps were led by food and health & wellness as well as increases in transactions and unit volumes. Sam's Club also gained dollar and unit market share in grocery and general merchandise categories, including apparel and electronics. Growth in eCommerce sales was solid at 22%.
• The company does not provide comps for its Walmart International segment, but sales grew to $29.6 bln, or 8.3% CC, reflecting strength in Walmex, China, and Flipkart. Food and consumables did well, and it saw improvement in general merchandise. WMT also saw increased transaction counts and unit volumes. eCommerce sales up 18% while its advertising business grew 23%, led by Flipkart and Walmex.
• WMT says consumers continue to look for value to maximize their budgets while leaning into seasonal celebrations. Upper-income households account for the majority of gains, even while WMT grows sales and share among middle and lower income households. WMT is highly encouraged by customer uptake of its new private label food brand (called bettergoods) and the early excitement for the re-launch of its young adult fashion brand (No Boundaries).

Overall, the Q2 upside was pretty modest, however, we think investors are bidding up shares because Q2 was better than feared given the July jobs data in early August and given WMT's cautious comments in late June. A big highlight was the strong Walmart US comp, despite lapping a strong result last year. What really helps Walmart is its higher exposure to groceries and everyday necessities. In FY24, roughly 60% of Walmart US sales were groceries while 26% were general merchandise. Contrast that with Target, which is 23% Food & Beverage. Also, what struck us was WMT being a bit more bullish on the general merchandise side of the business than we have heard in the past several calls.