August 17, 2023

Walmart Lifts Sales Outlook, Fueled by Consumers Looking for Deals

By Sarah Nassauer - WSJ

Walmart WMT -0.04%decrease; red down pointing triangle said sales and profit grew in the most recent quarter, another sign that American consumers continue to spend on necessities such as food—and look for deals.

The country’s largest retailer by revenue on Thursday also raised its full-year financial outlook, citing its strong performance during the first half of the year.

Walmart’s U.S. comparable sales, those from stores and digital channels operating for at least 12 months, rose 6.4% in the three months ended July 28. That was a slightly slower growth rate than earlier in the year but above analysts’ expectations for 4.1% growth in the latest quarter, according to estimates from FactSet.

Sales of groceries and health and wellness products increased from the prior year, continuing a trend of shoppers giving priority to necessities amid higher prices. Walmart, known for low prices, said it gained market share in groceries, which count for the bulk of its U.S. annual revenue.

The consumer picture is looking up compared with the start of the year, as unemployment remains low and wages are strong, Walmart executives said. Shoppers are continuing to cook more at home and still spending cautiously, they said.

Consumers are facing pressure on their budgets from rising energy prices, the return of federal student-loan payments, higher borrowing costs and a drawdown in savings, said Chief Executive Doug McMillon on a call with analysts Thursday. Some of these trends are global, he said.

“There is still reason to be very cautious,” said John David Rainey, Walmart’s chief financial officer, in an interview. “The resilience of the consumer comes through in our numbers.”

Profits at the parent of Walmart and Sam’s Club got a boost, in part because last year the company heavily discounted items to clear inventory as early buying trends of the pandemic came to a swift halt. Net income hit $7.9 billion in the most recent quarter, up from $5.1 billion in the same period last year. Lower sales of nongrocery items such as apparel and sporting goods ate into profits, as those items tend to generate higher profits than groceries.

Overall, revenue rose 5.7% to $161.6 billion.

Shares in Walmart fell more than 2% to $155.69 in Thursday trading. The company’s shares are up nearly 10% so far this year, compared with a 4% gain in the Dow Jones Industrial Average and roughly 14% gain in the S&P 500.

Retailers have reported mixed results in recent days as consumers continue to spend but do so cautiously in some areas. TJX, which owns T.J. Maxx, Marshalls and HomeGoods, reported on Wednesday a 6% jump in comparable sales in the same quarter and raised its sales growth and profit targets for the year. TJX, whose brands are known for selling discounted goods, said it had strong foot traffic to its stores and demand for apparel and home goods.

Home Depot and Target said earlier this week that sales fell in the most recent quarter but that profits were stronger than analysts had expected as last year’s inventory glut recedes.

Target also said shopper backlash over its Pride Month collection, as well as cautious consumers, pushed sales sharply lower in the most recent quarter. It cut its sales and profit forecasts for the full year.

Overall consumer spending will stay “pretty tepid, positively growing, but real slow,” said John San Marco, a portfolio manager at a Neuberger Berman fund, which holds positions in retailers including Walmart, Home Depot and Dollar Tree. The economic backdrop “means the winners should be fine, but the losing retailers will be under a lot of stress,” he said. Dollar General, Lowe’s, Macy’s and other retailers will report earnings later this month.

Inflation has cooled and overall retail sales have increased in recent months. The consumer-price index, a measure of goods and services prices across the economy, rose a mild 0.2% in July, the same as in June, the Labor Department said last week.

Retail sales—a measure of spending at stores, online and in restaurants—rose a seasonally adjusted 0.7% in July from the prior month, the Commerce Department said Tuesday, an acceleration from June’s 0.3% gain.

On Thursday, Walmart said for the full year it expects earnings per share of $6.36 to $6.46, up from its earlier forecast of $6.10 to $6.20. Net sales will grow 4% to 4.5%, up from a previous estimate of 3.5% growth.