Walmart shares tumble after cautious earnings outlook

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Walmart shares tumbled more than 7 per cent on Thursday after the world’s largest retailer predicted weak consumer spending during the holiday season.

John Rainey, chief financial officer, told analysts the company had seen “a softening” starting in October, with “somewhat uneven” sales since. “And this gives us reason to think slightly more cautiously about the consumer versus 90 days ago” when Walmart last reported results, he said.

Walmart’s results are closely followed as a gauge of the strength of the US consumer, which has proven relatively resilient in the face of persistent inflation. Data on Wednesday showed underlying retail sales rose 0.2 per cent in October, while September’s increase was revised higher.

However, retailers say shoppers have been shifting towards essentials and groceries and away from discretionary purchases.

“We see our customers showing ongoing discretion and making trade-offs to be able to afford the things they want, given the sustained high cost of the things they need,” Rainey added.

The company raised hopes, though, that some relief from inflation, a significant concern for US consumers, could be on its way.

Chief executive Doug McMillon said grocery inflation had started to normalise, with lower pricing on eggs, chicken and seafood. Pricing on general merchandise has also come down, which will enable Walmart to roll back pricing during the holiday season.

“In the US, we may be managing a period of deflation in the months to come,” McMillon told analysts during a Thursday call. “While that would put more unit pressure on us, we welcome it because it’s better for our customers.”

Walmart on Thursday reported comparable sales growth — a closely watched industry measure — of 4.9 per cent in the third quarter, ahead of Wall Street forecasts of about 3.2 per cent.

Meanwhile, its third-quarter revenue of $160.8bn and adjusted earnings of $1.53 a share came in slightly ahead of expectations.

However, the Arkansas-based group said that, while sales strength in its US operations during the quarter were led by grocery and health and wellness categories, general merchandise sales “declined modestly”.

Walmart said it forecast full-year net sales growth in the range of 5 per cent to 5.5 per cent, compared with previous guidance of 4 per cent to 4.5 per cent.

It also said it expected full-year adjusted earnings per share of between $6.40 and $6.48, from $6.36 to $6.46 a share previously, compared with analysts’ expectations of $6.48 a share.

Rainey said the softening in sales that began in October, and which prompted the company to be more cautious with its outlook, could have been a result of the high interest rate environment, student loan repayments or “anomalous weather” that occurred late last month.

Walmart’s relatively restrained earnings guidance contrasted with an improved sales and earnings outlook from rival Target on Wednesday, which had helped push Walmart shares to a record high.

Meanwhile, Macy’s, the department store chain, reported strong results on Thursday, sending its shares more than 7 per cent higher by midday in New York.

Despite stronger than expected profit outlooks, both Target and Macy’s reported declines in comparable sales in the most recent quarter, as shoppers continued to limit discretionary purchases.

Walmart, on the other hand, has still benefited from a price-sensitive consumer and executives told analysts on Thursday that the retailer had gained new customers across a variety of income groups amid persistent inflation.

“Our value proposition resonates more than ever when the consumer is pressured,” said McMillon. “We’ve seen this year that they not only are coming to us for the value that we provide, but also for the convenience.”

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