Retailer could see boost from next mega businesses

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Walmart (WMT) has been working overtime ahead of its earnings report.

America’s biggest retailer will deliver second quarter results before the market open on Thursday, offering up another sign on the consumer and economy following a dreary outlook from competitor Target (TGT).

Analysts expect a lift in same-store sales as consumers turn to the retail giant for value and to stock their fridges, bookshelves, and backpacks ahead of the back-to-school season.

This comes as consumers’ wallets remain pinched from ongoing headwinds like higher gas prices, a slowdown in the US job market, the looming return of student loan payments this fall, higher mortgage rates, higher interest rates, and higher costs for groceries.

While Walmart’s primary retail business will likely get most of the attention in the quarter, its side hustles may also boost its bottom line.

A shopper pushes a cart through the parking lot of a Walmart on the morning of Black Friday in Wilmington, Delaware, on November 25, 2022. - With inflation on the rise, retailers are expecting that many shoppers will be looking for especially good deals as discretionary spending falls. (Photo by Samuel Corum / AFP) (Photo by SAMUEL CORUM/AFP via Getty Images)

A shopper pushes a cart through the parking lot of a Walmart on the morning of Black Friday in Wilmington, Delaware, on November 25, 2022. (Photo by SAMUEL CORUM/AFP via .)

According to Guggenheim analyst Robert Drbul, the retailer has two other “sizable opportunities” in its ad business and health and wellness business.

The first is Walmart Connect, the company’s media business it rebranded in 2021 in a bid to drive omnichannel connections. It’s a “fast-growing media business as the company aspires to become the top 10 advertiser in the US,” Drbul told Yahoo Finance.

Furthermore, the business could represent a multibillion-dollar opportunity for the company, Drbul said, given “Walmart’s vision, reach, and ambition.”

As of June, some of its partners include NBCUniversal, Roku, TikTok, and TalkShopLive. Its growth strategy allows the retail giant to understand consumers’ behaviors and refine ad targets as the company focuses on e-commerce sales, which are expected to have increased by 1.5% last quarter.

And as the ad market roars back, Walmart Connect and its peers are proving to be pretty immune to macroeconomic headwinds.

“Now is the time to be advertising to stay top of mind with consumers and make sure that your brand message comes across loud and clear,” Ryan Mayward, a senior vice president of sales at Walmart Connect, told Yahoo Finance ahead of the company’s annual meeting in May.

Walmart by the numbers (Credit: Yahoo Finance, Source: Walmart)

Walmart by the numbers (Credit: Yahoo Finance, Source: Walmart)

The other driver is Walmart’s health and wellness business. Since 2019, the retail giant has built up Walmart Health, aimed at making healthcare more accessible using the retailers existing US footprint of 4,684 locations.

By the end of 2024, the company plans to double its health center footprint with more than 75 locations in the US in states including Texas, Arizona, Kansas, Missouri, and Florida. Walmart also moved into virtual health offerings by acquiring telehealth provider MeMD in 2021.

Drbul said that expansion was “amplified by the recent end of partnership with National Vision,” an optical retailer that operates vision centers at select Walmart locations.

Meanwhile, Walmart announced it raised wages for more than 7,000 opticians and pharmacists. The company said in the release it is “serious about being an employer of choice for the talented individuals in these fields.”

The average salary for Walmart pharmacists is now more than $140,000, while the average wage for opticians is more than $22.50 an hour.

Walmart stock was roughly flat in afternoon trading on Wednesday ahead of earnings.

The earnings rundown:

Here’s what Wall Street expects, according to Bloomberg data.

  • Net sales: $159.7 billion expected

  • Adjusted diluted EPS: $1.70 expected

  • US same-store sales growth: 4.04% expected

  • Sam’s Club US stores growth: 5.58% expected

  • Walmart US same-store sales growth: 4.29% expected

  • Gross margin: 23.55% expected

  • Inventory growth: -5.54% expected

What analysts said pre-earnings:

  • “We continue to believe Walmart is well positioned in an uncertain macro environment, with its price and value proposition and with increased convenience and assortment, despite persistent indicators of pressure on the consumer, including stubborn food inflation.” -Robert Drbul, Guggenheim

  • “Rollbacks continue to drive price leadership. Our checks point to an aggressive slate of Rollbacks for key Back-to-School items, which reinforces our near-term confidence on comp trends… Rollbacks are reinforcing price leadership in grocery and we expect to see a greater focus on general merchandise in the second half of the year. We do believe that comp upside may be more limited as inflation wanes, with data pointing to a comp consistent with our 3.9% US comp [same-store sales] view. However, we continue to expect a combination of expense discipline and more favorable merchandise mix to drive continued earnings strength.” -Edward Yruma, Piper Sandler

  • “[Walmart] is fundamentally turning the traffic corner, yet the stock refuses to break out and trails the market 300bps [year to date]. We think a clean beat and raise could get the Street to $6.50 in ’23 and $7+ in ‘24.” -Greg Melich, Evercore ISI

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].

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