Walmart reported stronger than expected earnings in the three months to the end of April, allowing it to raise its full-year estimates and buck the more wary tone about US consumer spending set by rivals Home Depot and Target this week.
“Stubborn inflation” in dry grocery and consumables was still weighing on some families and creating uncertainty about the outlook for the second half of the year, Doug McMillon, Walmart’s chief executive officer, told analysts on an earnings call.
Despite a 4 percentage point fall in headline inflation in food and consumables over the quarter, food prices remained more than 20 per cent above their level two years ago, said John David Rainey, the group’s chief financial officer.
“At the headline level consumer spending has proven resilient but below the surface we continue to see signs that customers remain choiceful, particularly in discretionary categories,” Rainey said, echoing comments earlier this week from Home Depot and Target about weak discretionary spending.
But Walmart gave a more bullish account of growth in the quarter and of its prospects for the rest of the year than its rivals.
The world’s largest retailer raised its full-year forecasts, predicting 3.5 per cent sales growth rather than the 2.5 to 3 per cent guidance it had reaffirmed last month. It now expects adjusted earnings to hit $6.10 to $6.20 a share, above the $5.90 to $6.05 range it had previously flagged.
Revenues for its fiscal first quarter were up 7.7 per cent excluding currency swings to $152bn, with ecommerce sales advancing 26 per cent. Cuts to operating expenses helped offset the spending shift from more profitable general merchandise items, lifting adjusted earnings per share by 13 per cent to $1.47, above the $1.25 to $1.30 range it had told investors to expect.
Walmart’s US general merchandise sales were down by a mid-single digit percentage in the quarter while food and consumables sales saw a “low double digits” increase, Rainey said.
Walmart continued to gain market share in grocery, including from higher income consumers who have become more price-conscious as inflation has persisted. Cheaper private-label brands also claimed a larger share of its US sales in the quarter.
Corey Tarlowe, a retail analyst at Jefferies, said the increases Walmart saw in both the number of consumers coming to its stores and the amount they spent on average were “very encouraging”.
Its more confident outlook than the one Target offered suggested it could gain market share at a time when US consumers were becoming “more and more stretched”, Tarlowe said. “People are buying more on credit, they’re saving less and they’re going to stores like Walmart more.”
Outside its home market, Walmart pointed to a 28 per cent sales increase from its stores in China as the country eased Covid-related restrictions. It also reported double-digit sales growth from the Walmex business in Mexico and from Flipkart, its ecommerce business in India, where McMillon said it saw “a big opportunity” to increase exports of several categories of goods.
Walmart shares were up 2.1 per cent shortly after Wall Street’s opening bell on Thursday.
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