Brett Biggs
Executive Vice President and Chief Financial Officer at Walmart
Thanks, Doug. Our strong second quarter and the solid start to the third quarter position us to deliver a great year of financial results while making steady progress against our strategic priorities. Our results continue to demonstrate the power of the omni strategy, providing customers with new products, services and tools. No matter how customers want to shop, we're here for them.
In some periods, in-store shopping will lead the way, and in some, eCommerce will lead the way. While we're always striving for more in each part of the flywheel, I'm pleased with the overall growth of the business. In Walmart U.S., comp sales grew 5.2% and transactions grew more than 6% as customers are returning to the convenience of one-stop, in-store shopping. eCommerce sales grew 6% in Q2 and 103% on a two-year stack.
We continue to build a very sizable eCommerce business around the world. In fact, we're on-track to deliver $75 billion in global eCommerce sales this year and on our way to $100 billion in the near term. We're also seeing continued strong U.S. market share gains in grocery, which is a key part of our business.
Sam's Club members are increasingly utilizing curbside pickup for online orders and the adoption of Scan & Go technology in club is at an all-time high. The success of Scan & Go at Sam's is one of the reasons we included this as part of the Walmart+ offering. In international, eCommerce penetration is now at nearly 19% of sales, and we're rapidly expanding omni services in key markets such as Mexico.
We're also rapidly expanding higher-margin businesses like advertising, data monetization and eCommerce marketplace, which gives us flexibility to invest aggressively for the future while growing profit near term. These businesses are in different places along the maturity curve, but we're scaling them.
For example, Walmart Connect U.S. advertising sales nearly doubled in Q2, and we expect the rapid growth to continue. While businesses like our new Fintech JV are still in a start-up phase, we know the opportunities are significant, and we'll share more in the coming quarters.
Now let's discuss Q2 results. As a reminder, the previously announced international divestitures significantly affect year-over-year comparisons, so my comments today will focus on the underlying business, excluding the effect of divestitures. In addition, the pandemic continues to create both tailwinds and headwinds for the business. U.S. government stimulus benefited sales this year and last year, but many international markets continue to be negatively affected by COVID and related government operating restrictions. COVID costs remained elevated, but significantly lower than last year.
Total constant currency revenue growth was strong, up 7.6% to more than $138 billion, with strength across all reporting segments. Walmart U.S. comp sales increased more than 5% in Q2 and more than 14% on a two-year stack basis. International sales growth was strong, up nearly 13% in constant currency, with strength in India, Mexico and China, while Sam's Club comp sales grew more than 10%, excluding fuel and tobacco. Currency benefited sales by about $2.4 billion.
Gross margin rate declined 22 basis points, reflecting category mix shift at Sam's Club and format mix shifts in international, but Walmart U.S. gross margin increased with favorable mix and strong Walmart Connect results.
SG&A expenses leveraged 78 basis points, reflecting strong sales, lower COVID costs and a 36 basis point benefit from last year's adjusted items, partially offset by increased wage investments in the U.S. Adjusted operating income on a constant currency basis was up 15.1%, leading to strong adjusted EPS of $1.78 with a $0.03 benefit from currency.
As anticipated, free cash flow declined about $8 billion due primarily to inventory increases from improved in-stocks and higher capex. We repurchased $2.4 billion of stock in Q2 and $5.2 billion year-to-date, which is up significantly from last year. This is one of the largest quarters for buybacks over the past two years, demonstrating our financial strength and belief in the value of our company.
Now let's discuss the quarterly results for each segment. Walmart U.S. had another strong quarter. Underlying business trends continue to be solid, including strong grocery market share gains, according to Nielsen, and an acceleration of store traffic. In fact, comp sales increased each month through the quarter and we're off to a good start with the back-to-school season. On top of extraordinarily strong growth last year, eCommerce sales were up 6% and have more than doubled over the past two years.
Strong sales trends were led by grocery, health and wellness and apparel as well as reopening categories such as automotive, travel and party supplies. Grocery sales were up 6%, including the benefit from modest ticket inflation and increased low double digits on a two-year stack basis. That results in $2.4 billion of growth in food sales year-over-year and about $5.5 billion of growth on a two-year stack.
Strong price positioning, great fresh quality and improved in-stocks are driving results. We're excited about the traction we're seeing in strategic growth businesses. Walmart Connect sales roughly doubled in Q2 versus last year as we ramp up new advertisers. The Spark Driver platform continues to grow, supporting last-mile deliveries from stores. Over the past 12 months, we've doubled Spark's coverage to more than 500 cities nationwide, providing access to more than 20 million households. Our eCommerce Marketplace is also expanding, and we expect to make hundreds of thousands of additional items available for fulfillment services this year alone. The Walmart business model is evolving, and these newer businesses are contributing to results in a more meaningful way.
Walmart U.S. gross profit rate improved 20 basis points with lower markdowns and strong advertising revenue, partially offset by increased supply chain costs. Margins were also helped by administering COVID vaccines this year and lapping last year's COVID-related closures of Vision and auto care centers.
We're continuing to see a bit more cost inflation than normal, but our merchants are working with suppliers and monitoring price gaps to keep prices low while managing margins. Operating income was strong, up about 12% on an adjusted basis. Inventory increased 20% due to lapping COVID-related inventory effects last year and strong sales growth this year.
We continue to monitor industry trends related to transit and port delays. Our merchants continue to take steps to mitigate challenges, including adding extra lead time to orders and chartering vessels specifically for Walmart goods. Out-of-stocks in certain general merchandise categories are running above normal, given strong sales and supply constraints.
International had a great quarter with strong sales and profit growth. Net sales grew nearly 13% in constant currency, including strength in India, Mexico and China. It's encouraging to see the continued progress of our large and growing eCommerce business in our markets. eCommerce sales grew 86% and penetration accelerated more than 700 basis points to nearly 19% of constant currency sales.
Comp sales in Mexico increased 4.7% as the omnichannel strategy continues to accelerate. We're seeing strong response to the launch of Walmart Connect Media in Mexico with the number of advertisers and campaigns growing rapidly.
Flipkart had another good quarter. Sales growth was strong even as they dealt with COVID, and we continue to see improving trends in monthly active customers and users. We were excited to take another step to position the Flipkart Group for future growth with the completion of a $3.6 billion funding round in July that included strong representation from external financial investors valuing the business at nearly $38 billion.
In Canada, COVID-related government restrictions on the sale of nonessential categories like apparel and general merchandise pressured sales and profitability, but we're optimistic that we'll see a more normalized sales and profit environment in the back half.
China comps increased 2.9% and were up 11.6% on a two-year stack, and eCommerce penetration has now reached more than 25% of sales in China. International operating income was strong, increasing about 28%, reflecting sales strength, the benefit from lapping last year's discrete tax item and lower COVID costs. Excluding the discrete item, adjusted operating income increased over 12%.
Sam's Club delivered excellent results with strong growth in sales, membership and profit. Comp sales grew 10.6%, excluding fuel and tobacco, and were up nearly 28% on a two-year stack basis, including strong eCommerce growth. Membership trends were also strong as we achieved a new high for overall member counts, saw significantly higher renewal rates and delivered record Plus member penetration. Sam's operating income was up 11.5%.
Now let's turn to guidance. We're closely monitoring the evolving COVID impacts around the world. Guidance discussed today assumes a continued strong U.S. economy with no new significant government stimulus for the remainder of the year. All of the guidance discussed excludes the impact of international divestitures.
We now anticipate higher full year sales growth due to the strong first half performance and an expected good back half of the year, with consolidated net sales growth expected to be up 6% to 7% versus prior guidance of a low- to mid-single-digit increase. Walmart U.S. comp sales are expected to increase 5% to 6%, representing about $20 billion of growth. We anticipate Sam's Club comps to increase 7.5% to 8.5%, excluding fuel and tobacco, and international constant currency sales growth of 7% to 8%.
We're also raising full year guidance for operating income and EPS. On a constant currency basis, we expect full year consolidated adjusted operating income to increase 11.5% to 14%, which is a material step-up from our prior guidance of high single-digit growth and an even more significant increase from our initial guidance in February. Walmart U.S. adjusted operating income is expected to increase 11% to 13.5%. Full year adjusted EPS is now expected to be in the range of $6.20 to $6.35. This is an increase from prior guidance of low double-digit growth as well as above the initial guidance of flat to up slightly.
The third quarter has started off well as back-to-school shopping is underway and we expect grocery market share gains to continue. We now anticipate Q3 adjusted EPS in the range of $1.30 to $1.40, with Walmart U.S. comp sales, excluding fuel, increasing between 6% and 7%.
Again, I'm very pleased with the second quarter results and feel good about the underlying momentum of the business.
Thank you for your time and interest this morning, and we'd be happy to take your questions.
