Looking for Retail Stocks That Crushed Q2 Earnings? Check out These 2

Fears of a recession are growing as inflation remains elevated, and the Federal Reserve indicated that it would continue raising interest rates. The market is pricing in the chances of a 75-basis-point interest rate hike when the Fed meets on September 21.

Retail sales were unexpectedly flat in July. However, amid this uncertain environment, well-known retailers Walmart Inc. (WMT) and Williams Sonoma Inc. (WSM) reported solid second-quarter results, surpassing Wall Street’s estimates on earnings.

The inclination of customers for low-cost food and necessities amid recession fears primarily helped these retailers perform well during the quarter.

According to Forrester, total US retail sales are expected to reach $5.5 trillion, with U.S. online retail sales increasing at a 10% CAGR over the next five years and accounting for 30% of the market by 2027.

Given WMT and WSM’s impressive second-quarter earnings performance, it could be wise to add these stocks to your watchlist now.

Walmart Inc. (WMT)

The retail behemoth WMT runs e-commerce websites like Walmart.com, Walmart.com.mx, flipkart.com, and other sites in addition to supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, and membership-only warehouse clubs.

Last month, WMT and Sustainable Beef LLC announced today that Walmart has agreed to buy a minority stake in Sustainable Beef LLC, a rancher-owned business based in North Platte, Nebraska.

Walmart's equity investment is part of a larger strategic collaboration to source high-quality Angus beef from Sustainable Beef LLC's new beef processing facility. This collaboration supplements the current beef industry and provides ranchers with additional opportunities to grow their businesses.

WMT's total revenue increased 8.4% from the year-ago value to $152.86 billion for the second quarter ended July 31, 2022. The company's net income surged 20.4% from the prior-year quarter to $5.14 billion, while its EPS increased 23.7% year-over-year to $1.88. In addition, its global advertising business grew by nearly 30%. The company’s adjusted EPS of $1.77 beat the consensus estimate by 10.6%.

Analysts expect the EPS to increase 2.8% year-over-year to $10.07 in fiscal 2022. The consensus revenue estimate of $95.12 billion in fiscal 2022 represents a 1.4% increase from the same period last year. The stock has gained 3% over the past three months.

WMT's POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

WMT also rated a B for Growth, Quality, and Stability. Within the A-rated Grocery Big/Box Retailers industry, it is ranked 8 of 38 stocks. 

To see additional POWR Ratings for Sentiment, Momentum, and Quality for WMT, click here.

Williams Sonoma Inc. (WSM)

WSM is a home-improvement specialty retailer. Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, and Mark and Graham are among the company's brands, which it sells through e-commerce Websites, direct-mail catalogs, and retail stores.

The home furnishings retailer's adjusted EPS of $3.87 for the fiscal second quarter ended July 31, 2021, beat the consensus estimate by 10.9%. WSM's net revenue increased 9.7% from the year-ago value to $2.14 billion. Its operating income grew 13.1% year-over-year to $365.52 million. The company's net income surged 8.5% from the prior-year quarter to $267.08 million.

WSM’s EPS is expected to grow at 4.7% per annum over the next five years. The consensus revenue estimate of $8.77 billion in fiscal 2023 represents a 6.4% increase from the same period last year. The stock has gained 16.3% over the past three months and 3% over the past month.

It is no surprise that WSM has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality. In the C-rated Home Improvements & Goods industry, it is ranked #14 of 62.

Beyond the POWR Rating grades I have just highlighted, you can view WSM ratings for Growth, Sentiment, Momentum, Value, and Stability.

WMT shares were trading at $134.68 per share on Thursday afternoon, up $2.13 (+1.61%). Year-to-date, WMT has declined -5.81%, versus a -16.91% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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