Walmart (WMT.US) US Q2 sales growth falls short of expectations, and many Wall Street institutions remain optimistic Jefferies: Core business trends are still steady

The Zhitong Finance App learned that on Thursday, Walmart (WMT.US) stock price plummeted by more than 9%. The company's sales growth rate in the US market in the second quarter was lower than market expectations, while profit guidance performance in the third quarter was weak, causing investors to worry about the company's short-term growth prospects. However, many Wall Street institutions, including Jefferies, Royal Bank of Canada Capital Markets, UBS, and Evercore ISI, remain optimistic about Walmart, believing that the slowdown in sales is more affected by specific business and macro factors, and that the company's market share growth trend has not changed significantly.

Financial reports show that Walmart's same-store sales in the US business increased 2.6% year on year, which is lower than the general expectations of the market. At the same time, the company's third-quarter profit guidance also disappointed investors.

In the earnings conference call, Walmart management said that the company is taking the initiative to lower the prices of some products, hoping to use this to further expand its market share. This also means that the company's short-term profit performance may be affected by price investment.

Jefferies analyst Corey Tarlowe pointed out that although Walmart's same-store sales in the US increased by only 2.6%, after excluding the health and wellness business, same-store sales increased by 3.4%. The health and wellness business is affected by deflation related to the highest fair price regulation of pharmaceuticals, which has dragged down the overall sales growth rate.

Jefferies believes that Walmart's core business trends are still steady, transaction volume continues to grow, and the company continues to expand its market share in various categories, while e-commerce, advertising, third-party platforms, and membership businesses all maintain strong performance. As a result, Jefferies maintained a “buy” rating for Walmart.

Steven Shemesh, a capital markets analyst at the Royal Bank of Canada, also maintains an optimistic view. He pointed out that if the tariff refund factor is excluded, Walmart's operating profit will still increase by close to 10%. Although investors may question whether the company is still worth a higher valuation under the current growth rate of the US business, RBC believes that this is more a reflection of the overall macroeconomic environment than the fact that Walmart's market share growth is slowing down.

RBC believes that compared to other retailers, Walmart still has a structural competitive advantage, and there is room for long-term growth in future revenue and profit.

UBS analyst Michael Lasser said that this financial report may further trigger market controversy over Walmart's valuation and growth prospects, but the bank is still optimistic about the company.

Evercore ISI, on the other hand, continues to maintain its “outperforming the market” rating. Analyst Greg Melich pointed out that Walmart's sales growth actually reached the upper end of the previous guidance range, while the company raised its annual sales growth forecast to 4.0% to 5.0%.

Evercore believes that the current profit growth trajectory reflects Walmart's active price investment and competition for market share rather than an obvious problem with consumer demand. In other words, the company is using its scale and profitability to further strengthen its competitive advantage through price cuts.

Although many Wall Street institutions continue to be optimistic about Walmart's long-term fundamentals, the lower-than-expected US sales growth rate and weak third-quarter profit guidance still put pressure on investors in the short term. Next, the market will focus on whether Walmart's price reduction strategy can further drive passenger flow and market share growth, and how much impact this strategy will have on profit margins.