Walmart’s shares hit record high as retailer raises its earnings forecast

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Walmart raised its full-year outlook after a forecast-beating quarterly report, helping propel its shares to a record high, as stubborn inflation continues to draw in US consumers seeking to stretch their dollar further.

Executives at the world’s biggest retailer said that consumer trends observed over recent quarters mostly remained in place. Those included shoppers favouring necessities over discretionary purchases, Walmart’s increasing popularity with wealthier customers and “slightly positive” inflation.

Although the macroeconomic outlook remains uncertain, the absence of Walmart observing a severe deterioration in conditions at the start of this year provided some comfort, given the company’s reputation as a consumer bellwether.

Investors responded to the upgraded sales and earnings outlook, and the “consistent” start to the year by pushing shares 7 per cent higher by Thursday’s closing bell in New York. It was the stock’s biggest one-day advance since March 2020.

“Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix as they’re spending more of their paychecks on non-discretionary categories and less on general merchandise,” chief financial officer John Rainey said on a call with investors.

The Bentonville, Arkansas-based company now expects growth in full-year net sales to be at the high end or slightly above its original guidance of 3 to 4 per cent. Adjusted earnings per share are forecast to be at the high end or slightly higher than its original guidance of $2.23 to $2.37.

The rosy outlook accompanied a 6 per cent increase in first-quarter revenues to $161.5bn, exceeding analysts’ expectations of $159.5bn. Net income leapt to $5.1bn, about one-fifth ahead of Wall Street forecasts, as the retailer benefited from lower markdowns and better inventory management.

Rainey said revenue growth in the quarter was driven through selling more units and higher foot traffic in stores, rather than inflation. The number of transactions at the company’s main Walmart US operations increased 3.8 per cent in the three months to April, though average ticket remained flat, a reflection that the US consumer is still seeking ways to stretch their dollar.

The overall inflation level for the business was up about 40 basis points for the quarter, Rainey said, which is half the rate of increase it recorded last year. He forecast inflation for the rest of the year to be “relatively close to what we saw in the quarter”, adding that general merchandise had been more deflationary but consumables and food were “hovering slightly above flat to up 1 per cent.”

Chief executive Doug McMillon had predicted in November that the company could find itself “managing a period of deflation” in early 2024, in a potential relief for the consumer, though that has not come to pass. Economic data this week showed that although year-on-year growth in consumer prices eased to 3.4 per cent in April, inflation remains stubbornly high.

With relief from price increases still limited, Rainey said many of the “value-seeking” behaviours it witnessed last year had continued.

Market share gains in its first quarter were “primarily driven by upper-income households”, defined as households earnings more than $100,000 a year. That continues a trend observed over recent quarters.

Rainey said that while general merchandise sales on its online platform Marketplace were “roughly flat” in the quarter, sales in categories including pet and beauty increased 30 per cent, while sales in other categories such as furniture and sporting goods were up in excess of 20 per cent on the year.

https://www.highcpmgate.com/f0c2i8ki?key=d7778888e3d5721fde608bfdb62fd997

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