12:20 PM EDT, 08/16/2024 (MT Newswires) -- Walmart ( WMT ) is expected to see continued gross margin expansion, with its investments in the supply chain and automation seen driving sales and margin upside potential, BofA Securities said in a note e-mailed Friday.

On Thursday, the retail giant logged fiscal second-quarter results that surpassed market estimates. Gross margin expanded by 43 basis points to 24.4% due to improvements in managing pricing in the US, among other factors, according to an earnings presentation. "So far, we aren't experiencing a weaker consumer overall," Chief Executive Doug McMillon said on an earnings conference call Thursday, according to a Capital IQ transcript.

Walmart ( WMT ) is seeing continued sales growth, share gains and higher gross margins, Chief Financial Officer John Rainey said on the call. "We're demonstrating that we're able to grow our business on a sustained basis in the absence of price inflation."

The company's gross margin is expected to continue to expand amid increasing contributions from higher-margin profit streams such as digital advertising, third-party marketplace and fulfillment services, BofA analyst Robert Ohmes said in a note to clients. These should help counter sales mix challenges as higher-margin general merchandise continues to lag grocery and health and wellness, Ohmes wrote.

Second-quarter US comparable sales increased 4.2%, topping Wall Street's 3.5% growth view. The upside reflected factors such as continued share gains across income levels, positive transactions, improving general merchandise momentum, and strong US ecommerce growth, BofA said.

Walmart ( WMT ) now expects fiscal 2025 adjusted earnings between $2.35 and $2.43 a share, up from its initial guidance of $2.23 to $2.37. Sales are forecast to grow by 3.75% to 4.75% at constant currencies, compared with its original target for a 3% to 4% increase.

"We think broad-based share gains should continue for (Walmart ( WMT )) as its strong value offering and high digital convenience resonates," BofA's Ohmes said. "Store remodels, online (stock keeping unit) expansion and express delivery capabilities are driving broad-based transaction (and) unit strength and participation in (Walmart+)."

Walmart+ membership income in the US rose by double digits in the quarter, Rainey said on the call. "While we're spending more on (capital expenditure) than we have historically, we're pleased with the returns from these investments, particularly the automation of our supply chain," Rainey added. The company expects the investments to generate returns that would enable it to grow its return on invested capital every year.

"We believe (Walmart's ( WMT )) investments in supply chain (and) automation and digital (and third party) marketplace offerings further support sales and gross margin upside potential," Ohmes said.

BofA raised its price objective on the Walmart ( WMT ) stock to $85 from $75 while reiterating its buy rating.

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