Website traffic points to strong second quarter results

Retail giant Walmart (New York Stock Exchange: WMT) will announce its second-quarter financial statements on August 16. While inflation and excess inventory issues may continue to impact Walmart’s performance, TipRanks’ website traffic tools show improving trends.

Upward Trends in Web Visits for Walmart

According to TipRanks’ website traffic tool, the momentum of Walmart’s e-commerce business has been sustained. According to the tool, visits to walmart.com and its two other websites increased 11.83% quarter over quarter in the second quarter. In addition, on an annual basis, traffic increased by 26.43%.

This is in line with management’s recently updated guidance for the second quarter. Walmart recently announced that second-quarter comparable sales (for Walmart in the US, excluding fuel) would increase 6%, compared to its earlier forecast of a 4-5% increase.

The increase in forecast comes from a higher mix of food and consumables in overall sales. This also reflects the increasing penetration of online sales.

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WMT margins will remain low

While improving traffic trends are encouraging and suggest that WMT’s sales could improve, the growing mix of food and consumables (low-margin products) will likely weigh on its margins. Additionally, higher markdowns to eliminate excess inventory will also hurt margins.

WMT CEO Doug McMillon said: “Rising levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress eliminating hardline categories, apparel at Walmart US require more markdown dollars.

Given the pressure on margins, Walmart cut its profit forecast for the second quarter. WMT expects Q2 Adjusted EPS to decline 8-9%. That compares unfavorably to its previous guidance, in which it said second-quarter EPS could remain flat or improve slightly.

Is Walmart a good stock to buy now?

Despite short-term challenges, improving web traffic indicates that Walmart’s digital strategy is resonating well with consumers. This is positive and will likely position WMT well to take advantage of the ongoing digital shift.

Highlighting WMT’s digital strategy, Guggenheim analyst Robert Drbul said, “We expect WMT to continue to benefit from growing digital penetration. WMT continues to expand its offerings profitably, and we are impressed with the continued e-commerce growth and market share gains. We believe that its strong position allows WMT to accelerate investments in its infrastructure and should enable a full optimization of its strategy, thus accelerating WMT’s revenue and earnings growth rates in the medium to long term.

Drbul is bullish on WMT shares, and his $155 price target implies 17.2% upside potential. Including Drbul, WMT stock received 24 buy recommendations and seven hold recommendations for a strong buy rating consensus. Moreover, the analysts’ average price target of $145.10 implies an upside potential of 9.7%.

Disclosure

Edwin S. Wolfe