By
Bloomberg
Published
Aug 16, 2024
Walmart Inc. raised its sales guidance for the full year on 15 August, buoyed by consumers buying necessities and seeking deals even as they curtail spending elsewhere.
The Bentonville, Arkansas-based company said it now expects net sales to rise as much as 4.75% for the year, versus previous guidance for a gain of as much as 4%. It also raised its targets for operating income and profits.
“We are seeing that the consumer continues to be discerning, choiceful, value-seeking” and focusing on essentials, CFO John David Rainey said in an interview on Thursday. “We are not seeing any incremental fraying of our customers’ financial health.”
Walmart shares rose as much as 8.4% in New York trading, the biggest intraday gain since November 2022. The stock was up 31% year to date through Wednesday’s close, compared with a 14% gain for the S&P 500 Index. Shares of rival Target Corp were also up as much as 6%.
In recent weeks, investors have tried to make sense of murky job markets and stock volatility by looking at companies for clues. Walmart’s bullishness points to an increasingly choosy US consumer facing economic uncertainty and high interest rates. Americans are pulling back on travel and deferring big home renovations. Instead, people are prioritizing on essentials like groceries, which has given Walmart’s business a boost.
Each month of the quarter remained relatively consistent, and there was no pullback during the latest quarter in July. Higher guidance is a reflection of the company’s outperformance in the first half of the year, Rainey said, adding that uncertainty still lingers due to the upcoming US election and geopolitical unrest in the Middle East.
Walmart said comparable sales in the US rose 4.2%, excluding fuel, last quarter driven by higher units and transactions. Analysts expected a gain of 3.4% for the metric, which captures revenue generated online and in stores open at least a year. It posted adjusted earnings of 67 cents a share, topping the analysts’ average estimate of 65 cents.
The company’s sales of general merchandise grew after 11 consecutive quarters of declines. The category, which has higher margins, has dragged on the business in recent years as consumers pulled back from discretionary items. Walmart said its broader assortment of these products is drawing consumers.
Within general merchandise, lawn, garden and seasonal products such as pool noodles were standouts during the quarter. Combining all pool noodles Walmart sold would stretch out to 30,000 football fields, Rainey said. Back-to-school season is off to a healthy start, with stationery being popular.
“We aren’t experiencing a weaker consumer overall,” CEO Doug McMillon said on a call with analysts. “They want value. They want a broad assortment of items and services.”
Notable deflation is unlikely going forward, he said. Prices of general merchandise products, which refer to non-essential items like appliances, are unlikely to decline much further. Packaged food prices are still inching up, with some suppliers discussing potential increases, and Walmart is pushing back, he said.
Walmart has been an outlier among consumer companies generally facing weaker demand as value-seeking behaviors propel its business.
“Consumers are definitely getting more targeted in their purchasing,” said John Tomlinson, a senior analyst at research firm M Science. People are buying items on sale and spending during deal events, but retreat when they don’t feel like there’s good value.
“Consumers focused on essentials and online discounts in July,” Bloomberg Economics’ Estelle Ou and Eliza Winger said. “Coupled with a loosening labor market, we expect consumer spending to remain narrowly focused and discretionary spending to continue losing steam.”
Walmart’s e-commerce business was a beneficiary, growing 22% in the US as the operator of about 4,600 stores relies on its vast network of physical locations to fulfill online orders. Executives said the company is narrowing e-commerce losses and cutting delivery-related costs, and that consumers are paying up to receive packages faster.
The company has also been investing in advertising, membership, third-party marketplace and other newer businesses that have higher profit margins. The growth of these areas is helping Walmart reinvest in price and other parts of operations. Advertising and membership were major drivers of operating income growth.
International sales rose 8.3% led by Walmex and China. Comparable sales growth in China increased 13.8% due to strength at Sam’s Club and in e-commerce. Walmex saw strong sales in food and consumables.