Walmart Inc on Tuesday lifted its annual sales and profit forecast as demand for groceries holds up despite higher prices, while discounts on clothing and electronics helped it cut back excess inventories ahead of the busy holiday season.
The company also raised its full-year net sales expectations ahead of the holiday season and announced a new $20-billion share buyback plan, pushing its shares up 7.3 per cent in premarket trading.
Its results boosted stocks of other major retailers, including Target Corp and Macy’s Inc.
Amid persistent inflation, investors have been nervously eyeing how consumer spending pans out during the crucial holiday season, when retailers make more than a third of their annual profits.
“In this period of macroeconomic uncertainty, we believe that we are well equipped to continue gaining market share in an environment where consumers need to stretch their dollars further,” Chief Financial Officer John David Rainey said on an investor call.
The world’s largest retailer by sales forecast holiday quarter U.S. same-store sales, excluding fuel, to increase about 3 per cent, below estimates of a 3.4 per cent increase.
Rainey said the guidance assumes that consumers could slow spending, especially in general merchandise categories, due to continued rising costs for food.
The company’s comments follow those of FedEx and Amazon, which have also warned of muted holiday season demand in recent weeks.
For the full-year, the Bentonville, Arkansas-based chain forecast net sales to rise 5.5 per cent, above its previous forecast of a 4.5 per cent increase.
Walmart also said it was better prepared on the inventory front with many of the challenges it faced earlier this year “cleared out.” The company’s inventories were up 13 per cent at $65 billion on a value basis, which CFO Rainey said was 70 per cent inflation driven, but on a unit basis was “much lower.”
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Walmart’s strong results prove its operational model excels during times of economic strength … Walmart is a counter-recessionary retailer,” Guru Hariharan, founder and CEO of research firm CommerceIQ said.
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While U.S. consumer prices rose less than expected in October, a recent survey shows that consumer sentiment slumped in November and inflation expectations had edged up.
CFO Rainey told Reuters that the company continued to see a mid-teen level of inflation in food, while general merchandise inflation eased “quite a bit.”
This continued rise in food prices meant that Americans are trading down from higher quality proteins to beans, hotdogs, peanut butter and store-label brands, he added.
This helped it post a rise in third-quarter comparable sales, even though profit margins were impacted. Comparable sales at its Walmart U.S. business rose 8.2 per cent.
“Customers that came to us less frequently in the past are now shopping with us more often, including higher-income customers, Walmart’s Chief Executive Officer, Doug McMillon, said on an investor call.
Average transactions at its Walmart U.S. business rose 2.1% in its third quarter ended Oct. 31, compared with a 1% rise last quarter, while average bills rose 6%.
Walmart swung to a third quarter loss of $1.8 billion due to $3.3 billion in legal settlements to resolve U.S. state and local lawsuits accusing it of mishandling opioid pain drugs.
Reuters reported Walmart’s settlement, along with those of CVS Health Corp and Walgreens Boots Alliance Inc earlier this month.
(Reporting by Uday Sampath in Bengaluru and Siddharth Cavale in New York; Additional reporting by Arriana Mclymore; Editing by Sriraj Kalluvila, Chizu Nomiyama and Nick Zieminski)
