Walmart faces change in consumer behavior on inflation, quarterly results beat estimates

Walmart Faces Shifting Consumer Behaviour Over Inflation, Quarterly Results Beat Estimates

Walmart posted a big jump in revenue partly driven by inflation, but the retail giant faces mounting evidence of changes in consumer behavior due to rising prices, according to quarterly results released on Tuesday. The big-box retailer, which surprised Wall Street three weeks ago by cutting its profit forecast, ended up reporting better-than-expected results for the latest three months, following a recovery in business in late July.

The chain turned its latest profit forecast in a positive way as easing gasoline prices and an increase in back-to-school buying fueled activity.

The news sent shares higher, however, with executives continuing to indicate that they expect the hurdles facing customers to remain.

“I think this inflationary environment is going to last for some time,” Chief Executive Doug McMillan said on a conference call with analysts. “So people are going to become value conscious, which plays to our strengths.”

Revenue rose to $152.9 billion (approximately Rs 12,12,400 crore) for the second fiscal quarter ended July 31, up 8.4 per cent over the same period last year.

Profit rose 20.4 percent to $5.1 billion (about Rs 40,400 crore), although some of the increase was linked to accounting for the sale of assets in Brazil.

‘Trading Down’

Walmart’s US comparable store sales rose 6.5 percent from a year ago, but the company expects the pace to slow to about three percent in the second half of 2022.

Higher petrol prices as well as higher costs for grocery staples have prompted more consumers to “trade down” for lower-priced goods.

One example is the shift from deli meats to hot dogs, and purchases of canned tuna and chicken at higher prices, Chief Financial Officer John Rainey said.

In general, as consumers spend more on groceries, demand for apparel, electronics and home products has declined, leading to more promotion in these areas.

Rainey said the company also had to cancel “billions of dollars” to address inventory gluts.

“The swings we have seen in consumer behavior through the pandemic from in-store to online, along with large swings in purchasing goods versus services and then reverting to pre-pandemic norms, have been fast and difficult to predict , Renee said.

“These trends are exacerbated by inflationary pressures on the consumer that many of us have not experienced in our lifetimes.”

On July 25, Walmart cut its earnings forecast, saying a change in consumer behavior was making a dent in sales of goods with higher profit margins.

The company is now forecasting a nine to 11 percent decline in its full-year adjusted profit. That’s still worse than May’s outlook, but a smaller drop than the 11 to 13 percent drop expected three weeks ago.

Neil Saunders of GlobalData Retail said Walmart’s results show the advantages of its position at a time when consumers are concerned about high prices, but the company also faces challenges.

“Walmart is fighting a battle on two fronts,” Saunders said in an analysis. “Maintaining our position as a price leader and growing our food business. Here, we are optimistic about its prospects.

“The second is to punch up better operating profit numbers. This will be more challenging as the business faces higher costs and unfavorable sales mix trends.”

Walmart is trying to boost its non-retail business, recently unveiling a venture with the Paramount+ streaming service, which will be included in the company’s Walmart+ subscription program.

According to a joint news release announcing the venture, the new leverage will begin in September.

Walmart’s stock rose 5.6 per cent to $140.04 (about Rs 11,100) in morning trade.


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