From
Bloomberg
Published
16 August 2024
Walmart Inc. raised its full-year sales forecast on August 15, as consumers shop for essentials and look for bargains while cutting spending elsewhere.
The company, based in Bentonville, Arkansas, now expects net sales to increase by up to 4.75 percent this year. The previous forecast was for an increase of up to 4 percent. The targets for operating profit and profit have also been raised.
“We see that the consumer continues to be demanding, selective and appreciative” and focused on the essentials, Chief Financial Officer John David Rainey said in an interview on Thursday. “We do not see a gradual deterioration in the financial health of our customers.”
Walmart shares rose as much as 8.4% in New York trading, the biggest one-day gain since November 2022. By Wednesday’s close, the stock had risen 31% year-to-date, compared with a 14% gain in the S&P 500 index. Shares of rival Target Corp also rose as much as 6%.
In recent weeks, investors have tried to make sense of gloomy labor market conditions and stock price volatility by looking to companies for clues. Walmart’s bullish stance suggests that U.S. consumers are becoming increasingly picky amid economic uncertainty and high interest rates. Americans are traveling less and putting off major home renovations. Instead, people are focusing on essentials like groceries, which has given Walmart’s business a boost.
Each month of the quarter remained relatively consistent, and there was no decline in the final quarter in July. The higher forecasts are a reflection of the company’s outperformance in the first half of the year, Rainey said, adding that there is still uncertainty due to the upcoming U.S. election and geopolitical unrest in the Middle East.
Walmart said comparable sales in the U.S. rose 4.2% (excluding fuel) last quarter, driven by higher sales and transactions. Analysts had expected a 3.4% increase in the metric, which tracks sales online and at stores open at least a year. The company reported adjusted earnings of 67 cents per share, beating the average analyst estimate of 65 cents.
The company’s sales of consumer goods rose after 11 consecutive quarters of declines. The higher-margin category has weighed on business in recent years as consumers have moved away from consumer goods. Walmart said its broader assortment of these products is attracting consumers.
In general merchandise, lawn, garden and seasonal products such as pool noodles were the quarter’s top sellers. All the pool noodles Walmart sells combined would be equivalent to 30,000 football fields, Rainey said. The back-to-school season is off to a good start, and stationery is popular.
“We’re not seeing a weaker consumer overall,” CEO Doug McMillon said on a conference call with analysts. “They want value. They want a wide range of products and services.”
Significant deflation is unlikely in the future, he said. Prices for general merchandise, i.e. non-essential items such as appliances, are unlikely to fall much further. Prices for packaged foods are still rising, some suppliers are discussing possible increases, and Walmart is resisting them, he said.
Walmart is a special case among consumer goods companies that generally face weaker demand because its business is driven by price-focused behavior.
“Consumers are definitely more selective in their purchases,” says John Tomlinson, senior analyst at research firm M Science. People buy items on sale and spend money on special offers, but back out when they feel the offer is no longer right for them.
“Consumers focused on essentials and online discounts in July,” said Estelle Ou and Eliza Winger of Bloomberg Economics. “Combined with a loosening labor market, we expect consumer spending to remain tightly focused and discretionary spending to continue to lose momentum.”
Walmart’s e-commerce business benefited, growing 22 percent in the U.S. as the operator of about 4,600 stores relies on its vast network of stores to fulfill online orders. Executives said the company was cutting e-commerce losses and lowering delivery costs, and consumers were paying more to receive packages faster.
The company also invested in advertising, memberships, third-party marketplaces and other newer, higher-margin businesses. Growth in these areas helps Walmart reinvest in pricing and other areas of operations. Advertising and memberships were the main drivers of operating profit growth.
International sales increased 8.3%, led by Walmex and China. Comparable sales growth in China increased 13.8% due to strength in Sam’s Club and e-commerce. Walmex reported strong sales in food and consumer goods.
