Walmart, the biggest retailer in the United States, increased its sales and profit projections for the current year on Thursday as the holiday season approaches, despite the fact that American customers are becoming more frugal with their spending.
The company's stock dropped 7.7% on Thursday as management revealed that sales over the previous two months have been "somewhat uneven" due to rising interest rates and declining household savings.
More than half of Walmart's inventory consists of food and other daily necessities, making the company's increased emphasis on groceries a strong defense against the general downturn in spending on discretionary items.
John David Rainey, the financial officer of Walmart, said that the company observed a slowdown in consumer spending in the second half of October, followed by a spike in sales of home goods and clothing that had been out of fashion for the majority of the year in early November.
Rainey stated on the conference call that this gives them cause to think about the consumer with more caution than they did 90 days ago.
He echoed remarks made by Target chief executive officer Brian Cornell on Wednesday, saying that even if store visits increased by 3.5% in the third quarter, consumers are still highly choiceful with discretion and are waiting for sales days such as Cyber Monday and Black Friday.
Consumer spending makes up around 70% of the economy in the United States. In October, core retail sales in the country increased by just 0.2% as consumer spending slowed as a result of rising borrowing prices and the aftereffects of inflation. There may be some respite for consumers in the upcoming months as wholesale food inflation has begun to decrease.
Since March 2022, the US Federal Reserve has increased short-term loan rates by over 5 percentage points; rates of consumer lending and mortgages have increased as a result.
Cautious with the consumer
Retailers cautioned that the holiday season this year will not be as strong as previous years. Besides Walmart, retailers Bath & Body Works and Children's Place also released mixed quarterly data on Thursday. Macy's Minnesota saw strong results.
Michael Baker, analyst of D.A. Davidson, stated in a note that, given the current volatility, he believes it is reasonable for Walmart to be a little more cautious when it comes to customers leading up to the holidays.
However, the prediction positions Walmart for "another beat," said Art Hogan, the chief market strategist of B Riley Wealth, as it fell short of the midpoint of Wall Street forecasts.
Walmart has taken advantage of its considerable resources to keep costs low in spite of inflation to attract not only low-income shoppers but also high-income customers searching for cheaper alternatives to better stretch their budgets.
While the cost of general retail items like clothing and home goods has decreased by three to six percent, Rainey stated that the cost of consumables and food has been "more in check" compared to the previous year.
Executives on the conference call stated that Walmart will be able to lower pricing during the holiday season due to declining general goods prices.
Following rival Target's results, which predicted fourth-quarter profits above projections, Walmart shares reached a record high of $169.91 on Wednesday.
With a 20% gain in value so far this year, Walmart's stock is comparatively higher in price than its competitors.
Walmart raised its previous estimate of $6.36 to $6.46 earnings a share for the fiscal year 2024 to $6.40 to $6.48.
Comparable sales are expected to climb by 5% to 5.5% for the entire year, as opposed to the previously projected increase of 4% to 4.5%.
Exceeding predictions of 3.35%, comparable sales — that is, sales at Walmart's US stores operating for at least a year — rose 4.9% as of October 31, excluding gasoline. Web sales increased by 15%.
In the third quarter, the business reported an adjusted profit per share of $1.53. The average expectation of analysts was $1.52 per share.