October 4, 2022

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Walmart results ease some recession fears

Walmart results ease some recession fears
On July 25, Walmart warned about its earnings for the rest of the year, saying that rising fuel and food prices had prompted consumers to cut back on other spending, forcing the chain to Reducing the prices of some non-essential goods, such as clothing, electronics and household goods. The earnings warning was seen as another sign of the growing weakness of the economy in general.

But on Tuesday, the country’s largest retailer said it got a good response from customers from those price cuts in the last quarter. Although Walmart continues to expect lower profits in the second half of the year, it now expects lower profits in the future than previously expected. Earnings per share for the year are expected to fall 8% to 10%, excluding divestitures, but that’s better than the 10% to 12% drop I forecast on July 25.

“We are excited to see more customers choose Walmart during this inflationary period,” said CEO Doug McMillon.

Since Walmart is the largest retailer in the country, its results are watched not only as an indicator of its health, but as a measure of the strength of the US economy in general. Tuesday’s results were another sign, despite worrying indications that this might happen Recession in the coming monthsConsumer expenses still going strong. Walmart said it has so far seen a strong back-to-school shopping season.
Perhaps this is due to the persistence Strong job growth And the wage increase — which is good news for the broader economy, because consumer spending makes up nearly three-quarters of a country’s economic activity.

Shifts in Procurement

McMillon said the need to lower prices for goods other than food has helped get rid of excess inventory, even if price cuts and a shift in spending have squeezed profits.

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“We expect inflation to continue to affect the choices families make, and we are adapting to that reality so we can help them more,” McMillon told analysts on a call with investors. “Regardless of the level of inflation and as we work through places where we have very large inventory, we continue to make progress with our strategy.”

Walmart is partially positioned to benefit when prices are rising, as consumers are more likely to look for discounts from big retailers. McMillon said Walmart had more business from middle- and high-income shoppers as a result.

Walmart not only lowers prices, it cuts down on the merchandise you buy to put on shelves.

“We have also canceled multi-billion dollar orders to help align inventory levels with expected demand,” said Chief Financial Officer John David Rainey.

Sales at US stores that are open for at least a year are up 3%, excluding spending on fuel. Walmart said it expects to see the same rate of growth in the second half of the year. Total revenue increased 9% when adjusted for changes in currency exchange rates.

Rapidly changing outlook

Even with strong results, being able to predict where the company’s sales will be, and the US economy in general, is difficult.

“The fluctuations we’ve seen in consumer behavior have been difficult to predict and the frequency with which they are occurring has been severe,” said Rainey.

And one of the things that helps sales, and the company is doing better than I expected just last month, is the latest Gasoline prices dropThis leaves customers with more money to spend on other items.

“If you tell us that fuel is going to keep going down and food inflation is going to go down, that affects how we think about the general stock of goods,” McMillion said. “You don’t want to go into too much of a defensive situation.”

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Rainey said consumers have also adjusted their food purchases, with less spending on higher-priced meats and more spending on canned tuna, sausages and chicken. Purchases of the company’s own food brands also grew, with those brands growing twice the rate Walmart saw in the first quarter.

Hitting profit forecast

The mega retailer has managed to beat Wall Street earnings expectations, despite inflation and changes in consumer spending habits.

The company reported adjusted earnings per share of $1.77, just 1 cent down from what it earned on that basis the previous year. Analysts polled by Refinitiv had expected earnings to fall to $1.62 per share.

shares Walmart (WMT) Gain 6% in early news trading.