Walmart scored a big jump in revenues partly driven by inflation but the retail giant faces increasing evidence of shifting consumer behavior due to rising prices, according to quarterly results released Tuesday.
The big-box retailer, which stunned Wall Street three weeks
ago by cutting its profit forecast, ended up reporting better-than-expected
results for the latest three months, following a late-July improvement in
business.
The chain even tweaked its latest profit forecast in a
positive way as ebbing gasoline prices and a rise in back-to-school shopping
boosted activity.
The news sent shares higher, however, executives continued
to signal they expect the headwinds facing customers to persist.
"I think this inflationary environment is going to last
for a while," Chief Executive Doug McMillon said on a conference call with
analysts. "So people are going to be value conscious, which plays to our
strength."
Revenues for the second fiscal quarter ending July 31 rose
to $152.9 billion, an 8.4 percent increase from the same period of last year.
Profits jumped 20.4 percent to $5.1 billion, though some of
the increase was connected to the accounting for an asset sale in Brazil.
'Trading down'
Walmart's US comparable store sales rose 6.5 percent from a
year ago, but the company expects the pace to slow to about three percent
growth in the second half of 2022.
Higher gasoline prices, along with elevated costs for
grocery staples have prompted more consumers to "trade down" to
lower-priced goods.
An example has been in a shift from deli meats at higher
prices to purchases of hot dogs, and canned tuna and chicken, said Chief
Financial Officer John Rainey.
In general, as consumers have to spend more on groceries,
demand has fallen for apparel, electronics and home products, leading to more
promotions in these areas.
Rainey said the company also had to cancel "billions of
dollar" in orders to address inventory gluts.
"The swings we've seen in consumer behavior through the
pandemic shifting from in-store to online, along with big swings in the
purchase of goods versus services and then the reversion back to pre-pandemic
norms have been sharp and difficult to predict," Rainey said.
"These trends have been exacerbated by inflationary
pressure on the consumer that many of us have not experienced in our
lifetime."
On July 25, Walmart cut its earnings forecast, saying
shifting consumer behavior was denting sales of merchandise with higher profit
margins.
The company now projects its full-year adjusted profit will
decline nine to 11 percent. That is still worse than the May outlook but, a
smaller drop than the 11 to 13 percent plunge expected three weeks ago.
Neil Saunders of GlobalData Retail said Walmart's results
demonstrate the advantages of its position at a time when consumers are worried
about higher prices, but the company also faces challenges.
"Walmart is fighting a battle on two fronts,"
Saunders said in an analysis. "One is to retain its position as a price
leader and grow its food business. Here, we are optimistic about its prospects.
"The other is to punch out better operating profit
numbers. This will be more challenging as the business is facing higher costs
and unfavorable sales mix trends."
Walmart is trying to boost its non-retail business, most
recently unveiling a venture with the Paramount+ streaming service, which will
be included in the company's Walmart+ subscription program.
The new benefit will launch in September, according to a joint
news release announcing the venture.
Shares of Walmart rose 5.6 percent to $140.04 in mid-morning
trading.
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