With prices on many goods rising in recent months, even the most sophisticated retailers like Walmart are struggling to keep up with the changes inflation has caused to consumer behavior.
Walmart said Tuesday it is continuing to work on the issue. earnings report US equivalent sales increased 6.5% year-on-year, while operating profit declined 6.8%.
The increase in sales in the quarter ended July 31 was driven by shoppers purchasing essential items such as groceries. This shows that people continue to focus their spending on essentials. This often results in lower profit margins, but cuts spending on categories considered more discretionary, such as electronics and apparel. “We expect inflation to continue to influence family choices, and we are adapting to that reality,” Walmart Chief Executive Doug McMillon said on a conference call with analysts. .
Walmart prepared a report to Wall Street last month when it revised its full-year outlook and said it expects full-year operating profit to decline by as much as 13%. We also expected comparable second quarter sales to increase by about 6%, which we were slightly ahead of.
On Tuesday, retailers said they provided a slightly improved outlook, expecting full-year operating profits to fall 9-11%. It also said it expects comparable sales in the US to increase by about 3% in the second half. The company’s shares were up more than 5% at the close of trading on Tuesday, one of the best days since 2020.
Inflation FAQ
Inflation FAQ
What is inflation? Inflation is the loss of purchasing power over time. So your dollar won’t go as well tomorrow as it did today. This is usually expressed as annual fluctuations in the prices of commodities and services such as food, furniture, clothing, transportation, and toys.
Walmart is also running higher-than-usual inventory levels of items consumers are reluctant to buy amid rising food and gas prices. Consumers have recently felt some relief from inflation as average US gasoline prices fell below $4 a gallon, his lowest level since March.
Neil Saunders, managing director of retail at Global Data, said, “Core customers are price-sensitive, and with inflation weakening their purchasing power, they are more likely to add non-grocery items to their carts when shopping. more reluctant,” said an email. “Fortunately, Walmart hasn’t completely lost its footing as it retains its customers in the food category, but it doesn’t do much to entice consumers to shop across multiple categories. Not successful.”
While retailer sales may increase this quarter, operating profit shows the company has successfully executed its broader business strategy in an uncertain environment.
“What we’re looking at now is how well they’re going to get through very difficult times,” said David Silverman, senior director at Fitch Ratings.
Walmart executives received some questions in a call with analysts about how the company is managing excess inventory and markdowns.Walmart Chief Financial Officer John David Rainey said retailers had canceled “billions of dollars” of orders. He added that inventory levels peaked last quarter.
Inflation isn’t the only thing retailers are dealing with, Silberman said. They are also building digital capabilities, trying to attract workers in a tight labor market, and dealing with stagnation in his chain of supply.For some companies, difficult economic moments may lead to missed investment opportunities in their business and the long-term impact on their market share. The current strong performance will help the retailer succeed during the critical holiday season.
Walmart executives said lower-than-expected supply chain costs in the quarter helped boost earnings.
“They seem to be managing better and managing smarter through this period,” Silverman said. “And they will probably cope better with this missed execution than others.”
Nonetheless, inventory problems at major retailers are affecting the industry as a whole, said Mickey Chada, Moody’s lead analyst for Walmart. If Walmart is offering discounts to eliminate excess inventory, competitors will likely follow suit.
“This will have a full impact on overall retail profit margins,” Chada said.
Walmart’s e-commerce sales in the US grew 12% in the most recent quarter, and the company is looking at more ways to attract customers to its digital platforms. On Monday, the retailer announced an agreement to include Paramount+ streaming services as part of Walmart+ membership packages. Walmart+ subscribers pay $12.95 a month and get benefits like free shipping and gas discounts. The retailer has also discussed deals with Disney and Comcast executives that may bundle access to streaming entertainment with membership services.
home depot too Earnings reported on Tuesday, also beat Wall Street’s expectations for sales and earnings in its most recent quarter. Home Depot chief financial officer Richard McPhail said demand for home renovations remains strong and the company is poised to increase its market share.
Home Depot has consistently outperformed analyst expectations during the pandemic, with the company’s stock gaining about 4% on Tuesday. A decline in the number of transactions in the second quarter combined with a significant increase in the average amount spent on each transaction meant that professionals such as contractors and builders continued to spend while some shoppers pulled out. It has been suggested that there may be
Still, retailers are getting mixed signals about what shoppers are willing to splurge on. In July, Home Depot began selling Halloween merchandise. This category is not a staple for home improvement retailers better known as suppliers of power tools and plywood. Within hours, however, the 12-foot-tall skeletons were sold out.
“There aren’t many things more discretionary than a giant skeleton,” McPhail said in an interview.