Customers queue outside a Walmart store in Port Arthur, Texas. Picture: REUTERS
Customers queue outside a Walmart store in Port Arthur, Texas. Picture: REUTERS

New York — Walmart bounced back from a lacklustre start to the year with the strongest sales gain in more than a decade fuelled by its grocery business, brightening the outlook for the overall retail sector. The stock soared in early trading.

Comparable sales at US Walmart stores rose 4.5% in the three months to end-July, the company said on Thursday, more than double analysts’ estimates. Grocery sales rose the most in nine years thanks to improved fresh-food offerings, and web revenue growth accelerated from the previous period. The world’s biggest retailer also boosted its full-year forecasts for comparable sales and adjusted profit.

Walmart has benefited from improved consumer sentiment and tax cuts that have put more money in Americans’ pockets this year. US retail sales rose by more than forecast in July, as shoppers snatched up apparel and school supplies. But investors remain broadly sceptical that brick-and-mortar retailers can keep pace with online rivals like, evidenced by Macy’s shares plunging Wednesday despite boosting its earnings and sales guidance.

"We’re pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient," Walmart CEO Doug McMillon said in a statement. "We’re continuing to aggressively roll out grocery pickup and delivery in the US, and we recently announced expanded omni-channel initiatives in China and Mexico."

Grocery strength

The company now offers curbside pickup of online grocery orders in 1,800 US stores, and CFO Brett Biggs said in an interview that the service is bringing in new customers who had not shopped at Walmart before.

Another bright spot in the second quarter was the Sam’s Club warehouse chain, whose comparable-store sales increased 5%, more than double analysts’ estimates, marking the strongest quarter in six years.

Walmart’s shares rose as much as 10% in premarket trading as of 7.17am after the release of the results. If the gains hold, the stock is on course for its biggest intraday increase since November.

Better weather

Biggs said the retailer benefited from improved weather in May, the first month of the quarter, which led to the biggest quarterly gain in customer traffic in more than six years. Shoppers had largely stayed home during the cold, wet April.

"Customers tell us that they feel better about the current health of the US economy as well as their personal finances," Biggs said. "With warmer weather, sales of seasonal items like pools, air conditioners, swimwear and gardening supplies really popped in May compared to April. No doubt we were aided by tailwinds during the second quarter."

For the full fiscal year, Walmart expects comparable sales, excluding fuel, of about 3% at both its namebrand stores and at Sam’s Club. It had earlier been expecting growth off at least 2% at Walmart stores and slightly negative to flat performance at the bulk chain.

The retailer now expects full-year adjusted earnings per share of $4.90-$5.05, excluding the sale of its majority stake in Walmart Brazil, losses related to its investment in China and tax adjustments. That’s up from the $4.75-$5 it had been expecting previously.

It had earlier said it would have to trim its full-year profit forecast to account for its acquisition of a majority stake in Indian e-commerce merchant Flipkart, which has not yet been incorporated into the forecast.