Walmart CEO: ‘Food is still strong’

Brief description of the dive:

• Walmart US comparable sales excluding fuel increased by 4.2% in the second quarter of fiscal year 2025 as the retailer saw an increase in the number of transactions and sales volume both online and in-store.
• Walmart’s U.S. unit reported mid-single-digit grocery sales growth, led by fresh produce, and a 22 percent increase in e-commerce sales.
• Delivery and pickup sales are growing faster than sales at brick-and-mortar stores or clubs, Walmart Chairman and CEO Doug McMillon told investors during a Thursday morning earnings conference call.

Diving Insight:

Groceries continue to drive growth for Walmart as price-sensitive shoppers turn to the retailer to stock their fridges and pantries. In the second quarter, sales of the company’s grocery and health and wellness products outpaced sales of general merchandise.

“Food continues to be a strong focus and we are pleased to see improvement in the consumer staples segment,” McMillon told investors.

In the U.S., retail prices were mildly deflationary overall, McMillon said, while food prices were mildly inflated at the end of the second quarter but down 30 basis points from the previous quarter.

“In the context of a grocery sector where inflation is falling and switching gains are weakening, this is a solid result that reflects Walmart’s improved execution,” Neil Saunders, managing director of GlobalData’s retail division, said in emailed comments.

On the e-commerce side, Walmart is leveraging its massive fleet of stores to fulfill orders, expanding its automation capabilities and using generative AI to drive growth in online sales, executives said. The proximity of stores to customers enables faster delivery times. In-store delivery rose about 50% in the second quarter, with many customers opting for faster speeds, such as delivery in less than one or three hours, Walmart Chief Financial Officer John David Rainey told investors.

More than 45% of Walmart’s U.S. e-commerce fulfillment volume is now automated, Rainey said, and about 1,800 stores receive some shipments from 15 regional distribution centers that are in various stages of implementing automation, allowing supply chain teams to process more units.

McMillon said Walmart’s sales growth was driven by its wide selection of products and services, low prices and enjoyable shopping experience.

“Value matters to everyone, whether you have an income above or below $100,000,” McMillon said. “We see a difference in behavior at lower income levels — more pressure to open up prices. … And then for people at higher incomes, they can buy more discretionary goods and pay more for convenience.”

Company officials told investors the retailer continues to see share gains across all income groups, including higher-income households.

“I think Walmart+ membership, delivery, our home improvement business — all of those things come together to give us an opportunity to continue to grow at higher revenue levels, regardless of what happens in the economy,” McMillon said.

While there is some debate about the extent to which Walmart will be able to retain higher-income customers as inflation declines, GlobalData is optimistic that this customer group will stick around for the long haul, Saunders wrote.

“Very few higher-income consumers shop at Walmart with gritted teeth. Of course, there will be some churn; but that’s the normal state of affairs for grocery and something Walmart can manage,” Saunders wrote, adding that the retailer’s grocery improvements, including more innovative DTC brands and its new Bettergoods private label, will play a role in retaining customers.