Walmart’s Profits Drop Smaller as Discounts Attract Inflation-Hit Shoppers

Walmart Inc. boosted its annual profit forecast Tuesday. This was partly due to a smaller cut than one month ago. The company used discounts to get rid of excess merchandise, and higher fuel prices, which helped them beat their quarterly sales expectations.

The stock which had fallen more than 8 percent over the past year saw a 3.7 percent increase in premarket trades. On the same news, shares of competitors Target Corp. and Costco climbed, while Futures for blue-chip Dow Index lost some ground.

Walmart said it now expected fiscal 2023 adjusted earnings per share to fall 9-11 percent.

Last month, the top U.S. retailer spooked markets across the globe when it forecast a drop of 11-13 percent–down from previous guidance for a 1 percent fall–and warned consumers were pulling back on discretionary purchases at a far greater pace than feared as soaring inflation hit their spending power.

That forced Walmart to make steep price cuts on items such as apparel to try to reduce more than $61 billion worth of inventory it was sitting on at the end of the first quarter.

A host of retailers, including Target Corp. or Best Buy Co. Inc., have issued profit warnings recently as they battle with overstock merchandise.

Walmart reported inventories of $59. 92 billion at the end of the second quarter to July 31, still 25 percent above last year’s levels.

” “I believe it will take another quarter. Maybe get into the fourth.

Rainey joined Walmart in May and said that consumers continued to buy low-margin foodstuffs and other consumables, even though gas prices have fallen. He said that they are trading down and allocating more spend to private-label items.

” Instead of purchasing deli meats and beef, traders are trading down to canned tuna, chicken, and even beans. The same trend is happening in quantity. They’re selling smaller packs that are cheaper and trading them down. So instead of buying 12 items to buy six items in a pack,” Rainey said.

Home and electronics are “problematic” categories according to Rainey.

Kids shopping was a big boost to Walmart’s July sale, but parents chose school supplies over clothing. Rainey stated that he expects back-to school apparel sales to increase in the next few weeks.

Back–Half View Maintained

Since the release of the quarterly results last quarter, prices that consumers are paying for goods and services has shown some signs of decreasing. The consumer price index rose 8.5 percent in July, less than in the previous month, due largely to a 17 percent drop in gasoline prices.

This helped drive an 6.5 percent increase in sales at Walmart U.S. Stores that have been opened for less than a year. It beat its previous forecast of a 6 percent growth.

Total revenue rose 8.4 percent to $152. 86 billion in the second quarter, beating analysts’ average expectation of $150. 81 billion, according to IBES data from Refinitiv.

However, the quarterly operating income of the company fell 6.8 percent to $6. 85 billion.

The Bentonville, Arkansas-based retailer now expects consolidated net sales growth of about 5 percent and adjusted earnings to decline 9.0 percent to 11.0 percent in the third quarter. The company stated that same-store sales at Walmart U.S. will rise by 3 percent, excluding fuel. The company also reiterated its projection for a 3 percent increase in same-store sales for the remainder of the year.

“Walmart’s outlook was maintained for the second half of the year. This indicates that consumers, despite lower gasoline prices, still prefer to buy less on weekly trips to the supermarket, Stephanie Wissink, a Jefferies analyst, said.

By Uday Sapath Kumar, Siddharth Caval