Walmart says that easing US price pressures and a strong labor market are supporting American shoppers. However, it warns that rising fuel costs and high borrowing rates will continue to put pressure on household budgets.
The world’s biggest retailer, said that it continues to observe budget-conscious consumers seeking relief from persistent economic inflation. However, the company is confident that its “value proposition” still resonates with customers – including those of high income – and drives sales.
Doug McMillon, the chief executive of Walmart, said Walmart enjoyed a “strong” third quarter. The company beat expectations and raised its sales and profit forecasts for the second consecutive year. However, McMillon expressed caution about the larger challenges that American consumers face.
“Jobs and wages, pockets of disinflation and tighter lending standards are all helping our customers. But rising electricity prices and the resumption of student loan repayments, as well as higher borrowing costs, tighter lending standards and higher borrowing rates, are still putting pressure on household budgets,” McMillon said to analysts in a Thursday call.
Walmart’s chief financial officer John Rainey stated that customers are “stretching” their dollars, with more people buying grocery staples at home and less time eating out.
Rainey stated that “sales of general merchandise products like stand mixers and hand blenders have increased as consumers are preparing more meals at home.” They’re also purchasing more necessities, and they are focusing on cheaper items and brands. The growth of private-label products is a good indicator on the pressures that consumers face right now.
Walmart’s comments about disinflation, and higher borrowing rates come after investors were reminded of the fact that policymakers may still be fighting against inflation. The minutes of the Federal Reserve rate-setting meeting in July showed that, while officials were more cautious regarding the need to continue raising interest rates most members still saw “significant downside risks” for inflation.
Walmart, based in Arkansas, was among several US retailers who reported quarterly results last week. However the picture they painted of the American consumers is muddled and distorted by issues specific to their company.
Target, a rival retailer, reported a forecast-beating profit on Wednesday. However its revenues fell on an annual basis. This was the first decline in six years. The retailer’s full-year forecast was cut after it received a response in recent months to its Pride merchandise.
Target executives stated that consumers continue to spend money on experiences and services. This “puts near-term pressure” on Target’s discretionary products, which are more vulnerable.
This was in stark contrast to Walmart’s statement on Thursday, when McMillon said that “food is one of our strengths”, but he was also “encouraged” by the results we achieved in general merchandise in comparison with our expectations at the beginning of the quarter.
Rainey stated that consumers “show a willingness” to spend and “don’t compromise” when it comes to holiday purchases. McMillon stated that back-to school shopping is booming. “When back-toschool is booming, it bodes very well for Halloween and Christmas as well as [general merchandise] during the second half of the year.”
Home Depot, a DIY retailer, reported a second-quarter decline in sales as consumers continued to work on minor home improvements but resisted buying expensive items.
Target executives said that they also observed US shoppers reducing their spending plans in order to take into account the fact that students will have to begin repaying their student loans as of October, after the Supreme Court rejected President Joe Biden’s student debt relief plan.
Walmart forecasts earnings of between $6.36 to $6.46 per share in this year. Sales are expected to increase between 4 and 4.5%. Walmart had previously predicted a range between $6.10 and $6.20 per share with a sales increase of 3.5 percent.
Walmart’s quarterly revenue rose by 5.7 percent from the same period last year to $161.6bn. This was higher than the $160.30bn analysts had predicted in a Refinitiv survey.
Walmart reported earnings at $2.92 per share or $1.84 after adjusting for investment gains and losses and an opioid settlement cost. Analysts had expected adjusted earnings to be $1.71 per share.
The shares of the retailer dropped by 2.2% on Thursday.