Walmart Raises Its Outlook as Shoppers Look for Bargains - The World News

Walmart Raises Its Outlook as Shoppers Look for Bargains

Walmart, the largest retailer in the United States, raised its annual guidance on Thursday, a sign that it expects shoppers to continue to gravitate toward its value-oriented stores as they become more selective about their purchases.

The retailer said it expected net sales to increase 3.5 percent for the fiscal year and operating income to rise up to 4.5 percent.

Revenue in the first quarter was $152.3 billion, beating Wall Street’s estimate of $141.7 billion. Both the transactions and average amount customers spent rose in the quarter.

Higher-income households and younger customers are shopping more at Walmart, the company said, reflecting a trend that its executives have called out in recent quarters as Americans face higher-than-usual inflation. The retailer said it had also gained market share in the grocery category.

“We had a strong quarter,” said Doug McMillon, Walmart’s chief executive, in a statement on Thursday.

On a call with analysts, Mr. McMillon said inflation was slowing down consumer spending in discretionary categories like apparel and home goods. That, in turn, is causing uncertainty for Walmart executives as they plan for the year ahead.

“We all need those prices to come down,” Mr. McMillon said. “The persistently high rates of inflation in these categories, lasting for such a long period of time, are weighing on some of the families we serve.”

Retail earnings reports this week provided a glimpse into the mind-set of the American consumer and the state of the industry. Target, Home Depot and TJX, which owns T.J. Maxx and Marshalls, all reported first-quarter earnings that showed sales had moderated compared with the past few years, when shoppers were spending more freely.

Home Depot on Tuesday lowered its full-year guidance and said sales in the first quarter declined 4.2 percent from a year earlier. Executives said they had expected 2023 would be a “year of moderation” for the home improvement sector, but the company’s performance was below expectations.

Target’s quarterly sales increased a modest 0.5 percent. The retailer maintained its full-year guidance, but said that “based on softening sales trends” in the most recent quarter, it was planning for a wide range of sales outcomes in the second quarter.

Overall sales at T.J. Maxx’s parent company increased 3 percent. Its T.J. Maxx and Marshalls brands, which offer name-brand items to shoppers at discounted prices, posted an increase, but sales at HomeGoods declined 7 percent. It maintained its full-year guidance and forecast an increase in sales of 2 to 3 percent.

Analysts said the sales declines were a sign of consumers being more selective about what they bought, along with spending patterns gaining some semblance of normalcy after being less predictable during the pandemic. Broadly, the economy has remained resilient, with wage growth strong and jobs being added across a wide range of industry.

“We’re not seeing a collapse of revenue,” Simeon Siegel, managing director at BMO Capital Markets, said. “We’re seeing revenue disappointments. Consumers are still spending on the things that they decide they want to spend on.”

Retailers are facing a profit challenge. Walmart said on Thursday that its gross profit rate, or the difference between the cost of the goods and their sales, had fallen to 23.7 percent, slightly missing Wall Street’s estimates. The rate declined in part because shoppers were buying more groceries and products in Walmart’s health and wellness category and less general merchandise. Groceries typically have lower profit margins than discretionary categories like apparel.

Target said on Wednesday that its gross margin rate increased to 26.3 percent from a year earlier, when it had a glut of inventory and supply chain costs were higher. It said higher prices had also helped lift that number. But Target warned that shrink, the industry’s term for inventory that entered a store or warehouse but left without being accounted for, would hurt its profitability by more than $500 million compared with last year.

Retail analysts have expected thinner company margins this quarter, given more promotions to entice shoppers and more purchases of items, like groceries, that bring in lower profits.

That consumer behavior was reflected in this week’s retail sales report for April. Retail sales increased at a modest 0.4 percent from March, reversing a two-month decline. (The number is not adjusted for inflation and sometimes is revised.)

Department stores, health and personal care stores, and grocery stores all recorded increases. Spending at furniture stores, electronic stores and home improvement retailers declined. Spending at restaurants and bars increased 14.5 percent.

Restaurants and flights are usually considered discretionary, but they are also experiences, which Americans are spending more on. There is less emphasis on buying big-ticket items for the home given that many shoppers spent the early stages of the pandemic doing just that.

“Part of what we’re experiencing now is a bit of a rebalancing in the consumer budget,” said Michelle Meyer, chief economist at Mastercard. “As we look forward, should we expect this split between experiences and goods to last forever? Of course not. But there’s still more catch-up that needs to happen for some of these experience-based spending categories where consumers are still very eager to satisfy their lingering demand.”

Some analysts, though, warn that a confluence of factors — including less money in savings, tightening credit and continued high prices — will make shoppers pull back in the second half of the year.

Michael Lasser, a retail analyst at UBS, said the “very clear pattern” with retailers’ earnings results this week showed that consumers were being more discerning about what they purchased.

“My personal belief is that that’s going to continue for the foreseeable future,” Mr. Lasser said. “What will greatly influence the direction of spend from there is what happens to the labor market.”

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