Walmart raised its full-year profit forecast on Thursday following strong sales growth in the United States fueled by gains in grocery and other household staples.
The giant US retailer, which has been seen as a winner in a period of consumer inflation pressure because of its ability to keep prices lower through economies of scale, pointed to gains in grocery market share in the United States with higher-income households.
While Walmart raised its outlook, executives cautioned that shoppers remain pressured following a lengthy stretch of inflation that has lifted prices considerably over the last two years.
“At the headline level, consumer spending has proven resilient,” Chief Financial Officer John David Rainey said on a conference call with analysts. “But below the surface, we continue to see signs that customers remain choiceful, particularly in discretionary categories.”
Walmart now sees full-year adjusted profits of $6.10 to $6.20 per share, up from the prior range of $5.90 to $6.05 following the results, which topped analyst estimates and shares in pre-market trading.
Profits were $1.7 billion, down 18.5 percent from the year-ago period. Revenues were $152.3 billion, up 7.6 percent.
A factor in the profit decline was the lower valuation of Walmart’s equity holdings in other companies compared with the year-ago period.
In the Walmart US division, which accounts for more than two-thirds of sales, the company scored a lofty 7.4 percent gain in comparable store sales.
Much of that was tied to price increases. In terms of units of goods, sales were “basically flat,” Rainey said.
Walmart also scored large sales gains in China, Mexico and India, key markets in its much smaller international division.
Results in the United States benefited from a moderation in supply chain and freight costs.
Besides grocery, sales also rose in pharmacy due to increased prescription volume. Revenues also jumped in pet and personal care, due, in part, to inflation.
Offsetting these benefits were declines in general merchandize, with the company pointing to “softness” in discretionary areas such as home, electronics and apparel, according to a Walmart presentation.
– ‘Persistent’ inflation –
Chief Executive Doug McMillon pointed to “persistent” inflation in dry grocery and consumables as the biggest challenge “particularly if it’s a customer living paycheck to paycheck.”
The company has been working with suppliers to try to keep a lid on prices.
“That’s what we’re focused on and have been focused on,” McMillon said. “It’s just taking longer in those categories than we want.”
Walmart US President John Furner said the chain was making special effort to keep prices manageable for key items at major holidays such as Thanksgiving and Easter, noting that the “consumer is under a lot of stress.”
GlobalData analyst Neil Saunders described Thursday’s results as “another set of very strong numbers,” in a note.
“Because of its strong value for money position the cost-of-living crisis has acted as a recruiting sergeant for Walmart, increasing customer numbers,” Saunders said.
The moderation in inflation that has begun to take hold will probably “dampen” future results, but not right away, he said.
“Because household budgets remain under pressure, we do not see consumer behavior changing much over the remainder of this year –- which means Walmart will likely hold on to its customer gains and increase share further,” Saunders said.
Shares rose 1.0 percent to $150.95 in morning trading.
Shares of Walmart rose 1.9 percent to $152.30 in pre-market trading.
