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Walmart shares closed 8.1 per cent lower on Thursday after the world’s largest retailer predicted weaker consumer spending during the holiday season.
John Rainey, chief financial officer, noted “a softening” had started in October, with “somewhat uneven” sales since. “And this gives us reason to think slightly more cautiously about the consumer versus 90 days ago” when Walmart last reported results, he told analysts.
The Arkansas-based company’s results are closely followed as a gauge of the mood of US consumers, who have proven relatively resilient in the face of persistent inflation. Data on Wednesday showed underlying US retail sales rose 0.2 per cent in October, while September’s increase was revised higher.
However, retailers say shoppers have been shifting their spending towards essentials and groceries and away from discretionary purchases.
“We see our customers showing ongoing discretion and making trade-offs to be able to afford the things they want, given the sustained high cost of the things they need,” Rainey added.
Walmart’s customers have been “very responsive” to promotions, particularly for big-ticket items, Rainey told the Financial Times on Thursday, adding that the periods in between promotional activities have been a bit softer. He added a slight improvement in discretionary spending occurred in November, which was related to promotional activities and holiday-related events.
The company raised hopes, though, that some relief from the inflationary pressures on US consumers could be on its way.
Chief executive Doug McMillon said grocery inflation had started to normalise, with lower pricing on eggs, chicken and seafood. Pricing on general merchandise has also come down, which will allow Walmart to roll back pricing during the holiday season.
“In the US, we may be managing a period of deflation in the months to come,” McMillon told analysts on Thursday. “While that would put more unit pressure on us, we welcome it because it’s better for our customers.”
Walmart on Thursday reported comparable sales growth — a closely watched industry measure — of 4.9 per cent in the third quarter, ahead of Wall Street forecasts of about 3.2 per cent. Its third-quarter revenue of $160.8bn and adjusted earnings of $1.53 a share came in slightly ahead of expectations.
Sales strength in its US operations was led by grocery and health and wellness categories, while general merchandise sales “declined modestly”, it said.
Walmart is now forecasting full-year net sales growth in the range of 5 per cent to 5.5 per cent, compared with previous guidance of 4 per cent to 4.5 per cent.
It also raised its guidance for full-year adjusted earnings per share of between $6.40 and $6.48. That was up from a range of $6.36 to $6.46 a share previously, and compared with analysts’ expectations of $6.48 a share.
Rainey said the softening in sales that began in October, and which prompted the company to be more cautious with its outlook, could have been a result of high interest rates, the resumption of student loan repayments or “anomalous weather” late last month.
“Inflation is less of an issue during this fourth-quarter period,” Rainey said in an interview. Walmart’s guidance for sales growth in the fourth quarter was lower than for the third quarter but this was entirely driven by higher prices, he said. “We still see strength in units; we still expect consumers to spend into the holiday period.”
Walmart’s relatively restrained earnings guidance contrasted with an improved sales and earnings outlook from rival Target on Wednesday, which had helped push Walmart shares to a record high.
Meanwhile, Macy’s, the US department store chain, reported strong results on Thursday. Its shares closed up 5.7 per cent in New York.
Despite stronger than expected profit outlooks, Target and Macy’s reported declines in comparable sales in the latest quarter, as shoppers continued to limit discretionary purchases.
Walmart, on the other hand, has still benefited from a price-sensitive consumer and executives told analysts on Thursday that it had gained new customers from a variety of income groups as inflation persisted.
“Our value proposition resonates more than ever when the consumer is pressured,” McMillon said. “We’ve seen this year that they not only are coming to us for the value that we provide, but also for the convenience.”