Walmart, the nation’s largest retailer, continues to battle the effects of inflation on shoppers’ habits, saying in its earnings report on Tuesday that its U.S. comparable sales rose 6.5% from last year for the quarter ended July 31.
The increase was driven by shoppers buying basic necessities like groceries. The company’s overall operating profit for the quarter was $6.9 billion, down 6.8% from the same period last year.
Walmart had prepared Wall Street for the report when it revised its full-year outlook last month and said it expected full-year operating profits to fall as much as 13 %. He also said he expected comparable sales to grow about 6% for the second quarter, which he was able to slightly beat.
The retailer presented a somewhat improved outlook on Tuesday, saying it expected operating profits to fall 9-11% for the full year. It also said it expects its U.S. comparable sales to grow about 3% in the second half. The company’s share price rose 6% in early trading.
“We expect inflation to continue to influence the choices families make and we are adjusting to that reality,” Doug McMillon, Walmart chief executive, said in a call with analysts.
What is Inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in prices of common goods and services such as food, furniture, clothing, transport and toys.
The company’s earnings show how difficult it has been for even the most sophisticated retailers to adapt to changing consumer behavior in recent months. Retailers are adjusting to shoppers’ concerns about inflation and navigating higher-than-usual inventory levels for items people are less willing to buy amid higher food and oil prices. essence. Consumers have felt some relief recently as U.S. gasoline prices fell below $4 a gallon last week, their lowest level since March.
More of Walmart’s sales are coming from its grocery unit, a sign shoppers are continuing to focus spending on essentials like food — which often have lower profit margins — while cutting spending in categories such as electronics and clothing which they consider more discretionary.
“Its core customers are price sensitive, and because inflation has eroded their purchasing power, they are more reluctant to add non-food items to their baskets when shopping,” said Neil Saunders, director General of Retail at GlobalData, in an email. . “Fortunately, Walmart isn’t losing that footfall entirely as it retains customers on the food side, but it’s been less successful in enticing consumers to shop across categories.”
Walmart executives received several questions during the call with analysts about how the company is handling excess inventory and price cuts. John David Rainey, Walmart’s chief financial officer, said the retailer had canceled “billions of dollars” in orders. He added that inventory levels peaked last quarter.
Executives said lower-than-expected supply chain costs for the quarter helped bolster results.
Walmart’s U.S. e-commerce sales grew 12% in the last quarter, and the company is looking for other ways to attract customers to its digital platform. On Monday, the retailer announced that it had reached an agreement to include the Paramount+ streaming service in its Walmart+ membership package. Walmart+ subscribers pay $12.95 per month for perks that include free shipping and gas discounts. The retailer has also been in talks with Disney and Comcast executives about a potential deal that would bundle access to streaming entertainment with its membership service.
Home Depot, which also reported earnings on Tuesday, also beat Wall Street expectations for sales and earnings in its latest quarter. During the pandemic, the home improvement retailer has consistently exceeded analysts’ forecasts, and the company’s stock price rose about 4% in early trading. A drop in the number of transactions in the second quarter combined with a significant increase in the average amount spent on each transaction suggested that some buyers could pull back while professionals like contractors and builders continue to spend.