Dive Brief:

• Walmart’s U.S. business saw comp sales up 8.2% and e-commerce sales increase by more than 16% in the third quarter, the company reported Tuesday morning.
• Grocery sales were a standout for the company, with the U.S. business gaining market share according to CEO Doug McMillon, while general merchandise experienced a decline in comp sales with markdowns pressuring gross margin. The retailer’s U.S. grocery sales increased in the mid-teens and unit sales also grew after a slight decline in Q2, Chief Financial Officer John David Rainey told investors. Walmart’s private brands in food categories increased about 130 basis points, Rainey noted.
• Walmart’s emphasis on building out its omnichannel strategy coupled with its strong grocery performance come at a time when retailers are looking to entice shoppers planning meals for winter holidays. 

Dive Insight:

Where some retailers are experiencing the negative impacts of inflation, Walmart is finding increased market share in some areas.

“We significantly improved our inventory position in Q3, and we’ll continue to make progress as we end the year,” McMillon said in a statement. 

Walmart has continued to gain grocery market share from households across income demographics with nearly three-quarters of the share gain coming from those exceeding $100,000 in annual income, Rainey said. Walmart is making “good progress” on its in-stock levels with its grocery business, Rainey said.

During the quarter, Walmart saw slight trade-downs in categories like proteins, baking goods, baby and dog food, Rainey said. 

Walmart U.S. has set prices of the typical Thanksgiving meals the same as last year, including having turkeys priced at under $1 per pound. Sam’s Club is following suit with racks of lamb and lobster tails priced more than 40% lower than last year, McMillon said. 

On an earnings call with analysts Tuesday, McMillon said that shoppers who came less frequently in the past have been shopping more often with the company, including higher-income consumers.

McMillon also told analysts that the company is focused on earning repeat business with consumers, which includes a focus on strong apparel presentation, providing seamless pickup and delivery options, as well as selling more Walmart+ memberships. The company cut the price of such memberships in half earlier this month as part of a holiday promotion.

Touching on Walmart’s acquisition of Alert Innovation, Rainey said Walmart is expanding its buildout of micro-fulfillment centers that are attached to or inside of its supercenters. 

The retailer has struggled in recent quarters with excess inventory, like seasonal items, and executives noted the company is continuing to address with a category-by-category approach. Inventory in the U.S. was up 12.4%, with executives noting that it’s driven mostly by inflation rather than unit increases.

The retailer’s operating income fell 53% from last year to $2.7 billion, including $3.3 billion in legal charges “related to opioid legal settlements,” which the company announced a settlement framework for to resolve outstanding lawsuits. Gross profit rates dropped by 89 basis points in part due to markdowns and a mixture of U.S. sales. 

Walmart raised its full-year guidance, expecting net sales growth of 5.5% compared to a previously projected 4.5%. Adjusted operating income is now expected to decline by 6.5% to 7.5%, a more positive outlook than previously expected 9% to 11%.

Some analysts were positive about the retailer’s results and updated outlook in the face of macroeconomic issues.

“Walmart's sharp price point reputation helps the retailer prevail, again,” Insider Intelligence Principal Analyst Suzy Davidkhanian said in emailed comments. “Despite a difficult retail backdrop: mixed economic headlines, ongoing supply chain woes and consumers continuing to spend on experiences, Walmart's intensification in basics and replenishment goods, especially in grocery, coupled with its ongoing promise to roll back prices help the retail giant deliver strong quarterly results.”

That said, other analysts pointed out that the retailer’s success isn’t the same across its entire business.

“When consumer finances get tough, Walmart gets going,” Neil Saunders, GlobalData managing director, said in emailed comments. “Despite grocery success, Walmart is not replicating this across general merchandise. Here, sales are down by low single digits over the prior year. Given the higher customer numbers this underlines the fact Walmart is not doing a good enough job of enticing its food shoppers across the aisle to buy non-food products.”