Walmart raises annual sales and earnings bid on flexible consumer spending

(Reuters) – Wal-Mart Inc (WMT.N) raised its annual sales and profit on Thursday as shoppers bought inexpensive groceries and other essentials.

Shares of the largest US retailer by sales rose 1% after it also reported better-than-expected first-quarter results. Its stock is up 5.5% in the year through Wednesday, outperforming the broader Dow Jones Industrial Average (.DJI) by 1%.

Wal-Mart has kept grocery prices low to fend off competition from Target Corp (TGT.N) and Kroger (KR.N), as Americans continue to grapple with persistent food price inflation.

While prices for food eaten at home fell for the second consecutive month in April, they were still up 7.1% over a year ago, data from the Commerce Department showed last week.

Besides asking suppliers for the lowest prices, the retailer has also redesigned its supercenters, by widening aisles, updating fixtures, and adding more bright lights, signage, digital screens, and spaces to display home goods.

Walmart also launched a redesigned website and app in April with a cleaner, less cluttered look that highlights deals and items for the upcoming holidays or a specific season.

It’s also invested heavily in membership programs offered by Walmart and its warehouse business Sam’s Club over the years, which have proven attractive because they offer free pickup, delivery, and other perks like 10 cents off gas at the pump at Walmart locations.

This helps it win over wealthier families and Gen Z customers, CEO Doug McMillon said, on a post-earnings call, who are looking for both a low price and convenience, like grocery delivery and curbside pickup. Chief Financial Officer John David Rainey said sales at remodeled stores were “two percentage points” higher than those without remodels.

Overall, sales at Walmart’s U.S. stores open for at least a year rose 7.4%, excluding fuel, in the first quarter ended April 30, handily beating expectations for a 5.25% increase.

“As consumers have less purchasing power and less purchasing power, we’re seeing more of their income and wallets devoted to food and less to general merchandise,” chief financial officer John David Rennie told Reuters.

Rainey said he expects that trend to continue through the back half of the year. CEO Doug McMillon said it remains “uncertain” as inflation remained “stubborn” in dry groceries and items intended for immediate consumption.

A shopper wears a mask while shopping at a Walmart store, in North Brunswick, New Jersey, US, July 20, 2020. REUTERS/Eduardo Muñoz

While inflation remains flat and fears persist that the economy will enter a recession this year, recent economic data shows that consumer spending has remained resilient.

Health products help make an impressive quarter

For Walmart, U.S. comparable grocery sales grew in the low double digits, while general merchandise sales fell in the mid-single digits, Rainey said on an analyst call.

The company also saw more customers gain access to health and wellness products this quarter, identifying increased demand for medications used to treat diabetes.

A new group of drugs — Ozempic and Wegovy — has proven particularly popular in the United States for its ability to treat diabetes and induce weight loss.

Reuters graphics

“That was about as impressive as a quarter of what Wal-Mart could own,” said David Wagner, a portfolio manager at Aptos Capital Advisors that owns Wal-Mart shares.

Wal-Mart’s strong results contrast starkly with competitors Target and Home Depot’s bleak forecasts, which they blamed on weak consumer demand. Walmart’s online sales were also strong, up 27% in the first quarter compared to a 3.4% decline at Target over the same period.

Walmart now expects earnings per share for the full year in the range of $6.10 to $6.20, up from its previous forecast of $5.90 to $6.05. Analysts were estimating it at $6.16 a share.

The company also expected net sales to rise by about 3.5%, above its previous forecast of 2.5% to 3%.

Historically, the company doesn’t raise its full-year outlook during first quarter results. The company broke with this tradition, Rainey said, because “in this unique environment, it’s important to provide an ongoing framework as our perspectives evolve.”

Additional reporting by Aishwarya Venugopal in Bengaluru and Siddharth Kavali in New York; Editing by Aaron Kuyor

Our Standards: The Thomson Reuters Trust Principles.

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