Walmart posted a big jump in sales, fueled in part by inflation, but the retail giant is facing increasing signs of changing consumer behavior amid rising prices, according to quarterly results released Tuesday.
The big retailer, which stunned Wall Street three weeks ago by lowering its earnings guidance, ended up reporting better-than-expected results for the trailing three months after improving business in late July.
The chain even revised its most recent profit forecast upside as falling gas prices and a surge in school purchases boosted activity.
The news pushed shares higher, but executives continued to signal that they expect headwinds for customers to continue.
“I think this inflationary environment is going to continue for a while,” Chief Executive Doug McMillon said on a conference call with analysts. “So people will be value-conscious, which adds to our strength.”
Revenue for the second fiscal quarter ended July 31 increased to $152.9 billion, an increase of 8.4 percent over the same period last year.
Profits rose 20.4 percent to $5.1 billion, although part of the increase was related to accounting for an asset sale in Brazil.
– ‘Trading down’ –
Walmart’s comparable sales in the U.S. rose 6.5 percent year over year, but the company expects growth to slow to about 3 percent in the second half of 2022.
Higher gasoline prices coupled with increased costs of basic necessities have resulted in more consumers switching to cheaper goods.
One example has been the shift from higher-priced processed meats to buying hot dogs and canned tuna and chicken, Chief Financial Officer John Rainey said.
As consumers generally have to spend more on groceries, demand for clothing, electronics and household products has fallen, leading to more promotions in these areas.
Rainey said the company also had to cancel “billions of dollars” in orders to address inventory levels.
“The swings we’ve seen in consumer behavior during the pandemic, shifting from in-store to online, along with large swings in purchasing goods versus services and then returning to pre-pandemic norms, have been sharp and difficult to predict . ‘ Rainy said.
“These trends have been exacerbated by inflationary pressures on the consumer that many of us have not experienced in our lives.”
On July 25, Walmart lowered its profit guidance, saying changing consumer behavior is hurting sales of higher-margin goods.
The company now expects its full-year adjusted earnings to fall by 9% to 11%. That’s still worse than the May outlook, but a smaller drop than the 11-13 percent plunge expected three weeks ago.
GlobalData Retail’s Neil Saunders said Walmart’s results show the benefits of its position at a time when consumers are concerned about higher prices but the company also faces challenges.
“Walmart is fighting on two fronts,” Saunders said in an analysis. “One is to maintain its price leadership position and grow its grocery business. Here we are bullish on its prospects.
“The other is to get better operating profit numbers. This becomes more of a challenge as the company faces higher costs and unfavorable revenue mix trends.”
Walmart is trying to boost its non-retail business and recently unveiled a project with streaming service Paramount+, which will be included in the company’s Walmart+ subscription program.
The new benefit will roll out in September, according to a joint press release announcing the company.
Walmart shares rose 5.6 percent to $140.04 in morning trading.
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