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Walmart said easing price pressures in the US and a strong labour market were supporting American shoppers, but warned that rising fuel prices and high borrowing costs would mean household budgets remain under pressure.
The world’s largest retailer said it continued to observe budget-conscious shoppers seeking relief from persistent inflation across the broader economy, but indicated that its “value proposition” was still resonating with customers — including high-income ones — and propelling sales.
Chief executive Doug McMillon said Walmart had a “strong” quarter, which beat forecasts and resulted in the company raising its sales and profit guidance for the second time this year, but expressed some caution on the broader challenges facing American consumers.
“Jobs, wages and pockets of disinflation are helping our customers, but rising energy prices, resuming student loan payments, higher borrowing costs and tightening lending standards, and a drawdown in excess savings mean that household budgets are still under pressure,” McMillon told analysts during a call on Thursday.
Walmart chief financial officer John Rainey said customers were “stretching their dollars further”, with grocery staples and “in-home” options were being purchased more often as consumers dial back spending at restaurants.
“Sales of general merchandise kitchen tools like hand blenders and stand mixers have inflected higher as customers are preparing more food at home,” Rainey said. “They’re also buying more necessities and focusing on lower-priced items and brands.”
McMillon’s comments on disinflation and higher borrowing costs come a day after investors were reminded that policymakers’ fight against inflation may not be over. Minutes from the Federal Reserve’s July rate-setting meeting showed that while officials had become more wary about the need to keep raising interest rates, most members of the committee still saw “significant upside risks” to inflation.
Arkansas-based Walmart was one of several large US retailers to report results this week, but the overall picture of the American consumer they have painted is mixed and blurred by company-specific issues.
Rival retailer Target on Wednesday reported forecast-beating net income in the second quarter, but its revenues declined on an annual basis for the first time in six years. Hit by a backlash in response to its Pride merchandise in recent months, the retailer cut its full-year outlook.
Target executives said consumers were continuing to spend on experiences and services, “putting near-term pressure on discretionary products”, which Target is more exposed to.
That was in slight contrast to Walmart, with McMillon saying on Thursday that while “food is a strength”, he was “encouraged by our results in general merchandise versus our expectations when we started the quarter”.
DIY retailer Home Depot reported another decline in sales during its second quarter as consumers persisted with minor home improvement projects but refrained from buying big-ticket items.
Target executives also said they had observed some US shoppers trimming spending plans to account for the need to start repaying student loans from October after the Supreme Court threw out President Joe Biden’s student debt relief scheme.
Walmart now forecasts earnings between $6.36 and $6.46 a share this year, with sales up 4 to 4.5 per cent. It previously forecast a range of $6.10 to $6.20 a share, with sales up 3.5 per cent.
In the three months to July 31, Walmart’s revenue rose 5.7 per cent from a year ago to $161.6bn, beating the $160.3bn forecast by analysts in a Refinitiv poll.
Walmart reported earnings of $2.92 a share, or $1.84 a share after making adjustments for gains and losses on investments and an opioid settlement expense. Analysts expected adjusted earnings of $1.71 a share.
Shares of the retailer rose 0.8 per cent in early Wall Street trading on Thursday.
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