Walmart Inc. lifted its annual profit forecast after its discount model powered new market-share gains in the US, but Chief Financial Officer John David Rainey said the retailer is retaining a cautious view on US consumers.
(Bloomberg) — Walmart Inc. lifted its annual profit forecast after its discount model powered new market-share gains in the US, but Chief Financial Officer John David Rainey said the retailer is retaining a cautious view on US consumers.
The outlook for the rest of the year “hasn’t changed appreciably” after higher-than-expected earnings in the first quarter spurred the improved outlook, Rainey said as Walmart reported financial results Thursday. During the quarter, sales were strongest in February, then softened in March and April, he said, echoing comments by Target Corp. on Wednesday.
“There’s reason to be somewhat cautious on the health of the consumer,” Rainey said in an interview, citing pressures such as inflation and the expiration of a temporary boost in food-stamp benefits. “But if you look at our results in the quarter, it certainly speaks to our value proposition resonating with customers.”
The world’s largest retailer is benefiting from the resilience of its massive grocery business, which is enabling the company to grab more sales even as US shoppers think twice before buying discretionary goods. In addition to Target’s warning on weakening sales trends this week, Home Depot Inc. cited a consumer pullback in cutting its annual profit forecast earlier this week.
“Walmart’s trade-down/value positioning is resonating with its core lower-income consumer,” Greg Melich, an analyst at Evercore ISI, said in a note to clients. “Concern remains on the potential for slower US consumer spending in ’23 as the low- to middle-income consumer is showing signs of strain.”
Walmart advanced 2.6% at 9:51 a.m. in New York. The shares climbed 5.5% this year through Wednesday, trailing the S&P 500 index’s 8.3% gain.
Earnings Forecasts
Adjusted earnings for the fiscal year ending in early 2024 will range between $6.10 and $6.20 a share, Walmart said. The world’s largest retailer had previously capped its profit outlook at $6.05 a share. Wall Street had been estimating $6.14.
Walmart’s earnings amount to “probably the best retailer report so far this season,” but “the results aren’t perfect,” Vital Knowledge’s Adam Crisafulli said in a note to clients. He pointed to weakness in general merchandise sales as shoppers pull back on discretionary goods, plus lower gross margins and a second-quarter profit forecast that “falls a bit short.”
Indeed, Bentonville, Arkansas-based Walmart said adjusted earnings in the second quarter would be no more than $1.68 a share. That would trail the $1.70 projected by analysts.
In Walmart’s fiscal first quarter, which ended in late April, adjusted earnings rose to $1.47 a share. Analysts had predicted $1.31. Sales rose 7.6% to $152.3 billion, compared with the average analyst estimate of $148.7 billion.
In the retailer’s sprawling US operations, comparable sales grew 7.4% in the first quarter, as both transactions and average ticket increased.
Operating income jumped 17% to $6.24 billion, surpassing the highest analyst estimate compiled by Bloomberg. That provided a measure of validation for the goals Walmart set out at an investor day last month, when it said heavy investments in automation and technology would enable it to boost earnings growth.
“Profit grew much faster than sales and we made further progress on inventory levels” last quarter, Walmart Chief Executive Officer Doug McMillon said on a conference call to discuss the company’s results. “The business model we outlined at our recent investor conference is taking shape.”
(Updates with analyst comment in fifth paragraph, CEO comment in final paragraph)
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