Walmart’s investments in value and convenience won over shoppers in Q3

The news: Walmart raised its full-year outlook after reporting better-than-expected sales and profits in Q3 and a strong start to the holiday quarter.

• Walmart US comparable sales rose 5.3% YoY for the quarter ended October 25, well above the 3.73% consensus estimate.
• Earnings per share came to 58 cents, again surpassing the average estimate of 53 cents.

Walmart now expects net sales to increase between 4.8% YoY and 5.1% YoY this year—ahead of the 4.6% growth projected by Wall Street and a considerable upgrade from its prior estimate for growth between 3.75% and 4.75%.

How we got here: More high-income shoppers are turning to Walmart for their everyday needs. Households making at least $100,000 once again accounted for three-quarters of the retailer’s market share gains in the quarter, CEO Doug McMillon said.

• The retailer is courting affluent shoppers with a broader array of premium products across a number of categories, including grocery, beauty, and apparel.
• Those efforts are resonating: The percentage of high-income consumers who would consider purchasing groceries from Walmart rose to 54% in 2024, up from 50.6% last year, per data from YouGov BrandIndex.
• Stronger sales from wealthier customers contributed to the 2.1% YoY growth in Walmart US’ average ticket size, the biggest increase in over a year.

Walmart’s ecommerce investments are bearing fruit. US ecommerce sales rose 22% YoY, thanks to strong adoption for its pickup and delivery services as well as growth in its marketplace and advertising businesses.

• Marketplace sales grew 42% YoY, marking the fifth-straight quarter of growth over 30%. Walmart’s marketplace investments have enabled it to considerably increase its product assortment—by nearly 700 million SKUs and counting—and offer more of the brands and products shoppers want.
• Healthy ecommerce growth is fueling ad sales, which grew 26% YoY in the US.

Demand for general merchandise is recovering. General merchandise sales were positive in Q3 for the second quarter running, as Walmart’s lower prices and broader assortment persuaded value-conscious shoppers to open their wallets.

• Sales grew low single digits, even with price deflation of over 4%.
• Toys and apparel are currently “bright spots” for the retailer, due in part to lower prices but also because of the larger selection of products available on its marketplace.
• Walmart is also seeing healthy sales of discretionary items like TVs and headphones at the start of Q4—a good omen for its holiday performance.

Our take: Walmart is bullish about its performance this holiday season, thanks to its ability to offer both value and convenience to shoppers.

But it faces a number of potential headwinds.

• While two-thirds of Walmart’s merchandise is made, grown, or assembled in the US, President-elect Donald Trump’s proposed tariffs will probably result in “cases where prices will go up for consumers,” CFO John David Rainey told CNBC.
• The lack of resolution between East and Gulf Coast dockworkers and their employers could gum up supply chains once more next year, potentially leading to higher prices and inventory gluts.