Walmart boosts outlook for 2024 with bargains proving a powerful lure for the inflation weary

AP Retail Writer

NEW YORK (AP) — Walmart had another quarter of strong sales that topped almost all expectations with its comparatively low prices proving a powerful draw for millions who have struggled with rising costs for housing, groceries and almost everything else.

The nation’s largest retailer also raised its full-year outlook in a sign of confidence of its business model. Walmart executives said the consumer may still be holding out for deals, but they’re not seeing signs that their customers are fraying either.

“So far, we aren’t experiencing a weaker consumer overall,” CEO Doug McMillon told industry analysts Thursday.

Shares rose more than 6%, or $4.30 to $72.96 at the start of regular trading Thursday.

The second-quarter results were announced on the same day that the government reported that Americans stepped up their spending at retailers last month by the most in a year and a half. Both reports ease the concerns that the economy might be weakening under the pressure of higher prices and elevated interest rates. But other retailers and restaurants have reported shoppers pulling back, created a nuanced and mixed picture.

Walmart, based in Bentonville, Arkansas, is among the first major U.S. retailers to report quarterly results and provides a peek into how Americans are feeling about their spending power with signs that the red-hot U.S. economy may finally be cooling. Home Depot reported quarterly results Tuesday and noted that customers continue to rein in spending.

Hiring by U.S. employers fell surprisingly sharply in July and the unemployment rate rose for the fourth straight month with higher interest rates taking a toll on businesses and households. The strong U.S. economy has been a main driver of global economic growth and the U.S. jobs market has given Americans the financial wherewithal to keep spending.

The Labor Department said Wednesday that year-over-year inflation reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the Federal Reserve for an interest rate cut in September. But that doesn’t mean prices have come down as a whole, and consumers are still struggling.

Walmart Inc. reported earnings of $4.5 billion, or 56 cents per share, in the three months ended July 31. That compares with $7.9 billion, or 97 cents per share, in the same period last year when it booked big investment gains. Adjusted per share earnings were 67 cents, or 2 cents better than Wall Street had expected, according to FactSet.

Sales rose nearly 4.8% to reach $169.33 billion, also beating expectations.

Comparable store sales — which include online and stores open for the past 12 months — rose 4.2% in the U.S. That compares with 3.8% in the first quarter, and 4%, in the fourth quarter

Global e-commerce sales rose 21%, matching the first quarter’s pace.

The number of transactions, and the average amount customers spent during each of those transactions at Walmart, was higher than it was during the same three months last year.

And in a potentially encouraging shift, Walmart said sales of discretionary items like clothing was flat to very slightly positive. Americans for two years have maintained a laser-like focus on the essentials, taking a pass on goods that are not essential, and spending that money instead on groceries and other basics.

John David Rainey, Walmart’s chief financial officer, told The Associated Press during a phone interview that the improvement was a result of several factors: deflation in general merchandise, which helped attract more shoppers and improvement in Walmart’s merchandise, particularly fashion among them. He cautioned that shoppers are still choosy with sales of gaming and electronics still weak. And they’re gravitating more toward store label goods and waiting for sales, he said.

Rainey said prices of meat and dairy as well as dry groceries,which would include sugar and flour, still stubbornly high.

Walmart has stepped up discounts and during the most recent quarter, Walmart had 7,200 price rollbacks.. There was a 35% increase in the number of rollbacks on food items at Walmart.

Walmart said it continues to see market share gains across all types of income cohorts, led by upper-income households with at least annual household income of $100,000.

In July, Walmart launched its biggest store-label food brand in 20 years in terms of the breadth of items, hoping to reach younger customers who are not loyal to grocery brands and are seeking to cut spending on the grocery bill. Walmart said it expects to have a total of 300 products under the Bettergoods label by the fall ranging from frozen foods and dairy, to coffee and chocolate.

For back-to-school, Walmart retooled its 30-year-old brand called No Boundaries. to cater to Gen Z customers. The retooling of the No Boundaries label is part of a strategy to get customers to think of Walmart as a place to buy cool clothes, along with groceries.

For the year, Walmart said it now expects earnings per share to be in the range of $2.35 to $2.43. That’s up from its previous estimate of $2.23 per share to $2.37 per share. Analysts projected $2.44 per share, according to FactSet.

The retailer is projecting annual sales to be up anywhere from 3.75% to 4.75%. It had previously expected sales would rise 3% to 4%.