Walmart results ease some recession fears

HALLANDALE BEACH, FLORIDA - MAY 18: People wearing protective masks walk from a Walmart store on May 18, 2021 in Hallandale Beach, Florida. Walmart announced that customers who are fully vaccinated against Covid-19 will not need to wear a mask in its stores, unless one is required by state or local laws. The announcement came after the Centers for Disease Control and Prevention said that fully vaccinated people do not need to wear a mask or stay 6 feet apart from others in most cases, whether indoors or outdoors. (Photo by Joe Raedle/Getty Images)
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On July 25, Walmart warned of its earnings for the rest of the year, saying high fuel and food prices are encouraging consumers to cut other spending and forcing the chain to cut other spending. lowering prices on some non-essential goodssuch as clothing, electronics and household goods. The earnings warning was seen as another sign of growing weakness for the economy overall.

But on Tuesday, the country’s largest retailer said it had a good customer response from those price cuts last quarter. While Walmart continues to expect earnings to decline in the second half of the year, it now forecasts a smaller profit drop than it previously anticipated. Earnings per share for the year, excluding disposals, are expected to fall 8% to 10%, but this is better than the 10% to 12% decline predicted on July 25.

“We’re pleased to see more customers choosing Walmart during this inflationary period,” said CEO Doug McMillon.

Because Walmart is the nation’s largest retailer, its results are tracked not only as an indicator of its own health, but also as a measure of the strength of the U.S. economy in general. Tuesday’s results, despite alarming indications that there is a possibility, recession in the coming monthsconsumer spending stays strong. Walmart noted that it has seen a strong back-to-school shopping season so far.
Probably because it continues strong business growth and increased wages — and good news for the broader economy, as consumer spending accounts for about three-quarters of the country’s economic activity.

Changes in purchases

McMillon said that even as these price cuts and shifts in spending put pressure on profits, the need to lower prices on non-food items helped clean up excess inventory.

“We expect inflation to continue to influence the choices families make, and we’re adapting to that reality so we can help them more,” McMillon told analysts in a phone call with investors. “We continue to make progress in our strategy, regardless of inflation and working where we have a lot of inventory.”

Walmart is positioned in part to benefit when prices rise, as consumers may be more likely to seek discounts from big-box retailers. As a result, Walmart has taken in more business from middle- and high-income shoppers, McMillon said.

Walmart isn’t just cutting prices, it’s cutting the goods it buys to put it on the shelves.

“We’ve also canceled billions of dollars of orders to help align inventory levels with expected demand,” said CFO John David Rainey.

Sales in US stores that have been open for at least a year increased 3%, excluding fuel expenses. Walmart said it expects to see the same growth rate in the second half of the year. Overall revenue increased 9% when adjusted for changes in exchange rates.

rapidly changing view

Even with solid results, it’s hard to predict where the company’s sales and the US economy in general are.

“The fluctuations we saw in consumer behavior were difficult to predict and the rate at which they occurred was sharp,” Rainey said.

And one of the things that helped the sales, and the company performing better than they had anticipated just last month, is that the recent drop in gasoline pricesthis leaves customers more money to spend on other products.

“If you told us that fuel would continue to fall and food inflation would moderate, that would affect how we think about the overall inventory of goods,” McMillion said. “You don’t want to go into too much defensive mode.”

Rainey said consumers are also adjusting their food intake by spending less on higher-priced deli meats and spending more on canned tuna, hot dogs and chicken. Purchases of the company’s private label food brands also increased, with those brands growing at twice the rate Walmart saw in the first quarter.

Based on earnings estimate

The mega retailer managed to beat Wall Street’s profit expectations despite inflation and changes in consumer spending habits.

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

Shares Walmart (WMT) It gained 6% in early trading on the news.

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