Walmart shoppers appear unfazed by talk of recession

Strong results and a rosy forecast by world’s largest retailer signals consumer spending will keep powering US economy.

Walmart has reported 20 straight quarters of US growth, unrivaled by any other retailer [File: Reuters/Edgard Garrido]
Walmart has reported 20 straight quarters of US growth, unrivaled by any other retailer [File: Reuters/Edgard Garrido]

The trade war between the United States and China is weighing on global growth. And the bond market is flashing warning signs of recession. But Walmart shoppers do not appear to be too bothered.

Walmart Inc reported strong second-quarter results on Thursday and raised its earnings expectations for the year.

The world’s largest retailer’s performance was helped by shoppers who spent more at its stores and websites, indicating US consumer spending – a major driver of US economic growth – has not lost steam.

Shares of Walmart were up 4.6 percent in early trading in New York.

Wednesday’s results mark a 20-quarter, or five-year streak of US growth for Walmart, unmatched by any other retail chain.

Walmart’s rosy results and outlook is a stark contrast to other US retailers. Wednesday, Macy’s Inc lowered its annual earnings outlook amid worries over tariff-related price rises affecting demand. And on Thursday, JC Penney posted a nine-percent drop in sales.

Analysts said the contrast in performance indicates there is no evidence to suggest a broad drop in demand in the US economy and that retailers posting lower growth need to improve their business strategies.

US retail sales surged in July, which could help to assuage financial markets’ fears that the economy was heading into a recession.

Consumers are responding to the changes Walmart is making to its business and the company is gaining market share, Chief Executive Doug McMillon said in a statement.

Walmart gained share in grocery and general merchandise categories this quarter, the company said.

The retailer earns 56 percent of its revenue from food and grocery sales, which allows it to manage the pressure from tariffs better than many rivals, analysts said.

In an interview on Thursday, Chief Financial Officer Brett Biggs said Walmart has raised prices on some items due to tariffs, but it is not passing all the cost pressure it faces on to consumers.

It is managing that by negotiating with suppliers and sourcing from alternate supply bases, he said.

“We still feel good about the consumer overall,” Biggs said.

The company said it has expressed to the Trump administration that it wants negotiations with China to continue and communicated how this move impacts consumer and prices.

“We understand that free trade also has to be fair trade,” Dan Bartlett, executive vice president of corporate affairs, told reporters on a conference call.

A Walmart shopping trip was 5.2 percent more expensive in June compared with a year earlier, according to Gordon Haskett Research Advisors, which compared prices on a basket of about 76 identical items over the past year.

US President Donald Trump raised tariffs on $200bn of Chinese imports to 25 percent from 10 percent earlier this year, a move that has begun pushing up prices of thousands of products including clothing, furniture and electronics.

Earlier this week, Trump backed off from his September 1 deadline for imposing 10 percent tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods, to shield US holiday sales.

The move offered relief to the retail industry but will do little to mitigate the effect on consumers during the holiday season. Most retailers had already purchased their holiday-season merchandise, and the inventory has for the most part arrived at US ports and warehouses.

No change in gun sale policy

Walmart has also come under growing pressure and criticism over its policy to continue selling firearms after two mass shootings, one at its store, killed 31 people in Texas and Ohio. The retailer said its policy to sell guns has not changed.

It said it has about two percent of the market for firearms and is not among the top three sellers. It also has a 20 percent share of the ammunition market.

“We’re encouraged that broad support is emerging to strengthen background checks and to remove weapons from those who have been determined to pose an imminent danger,” Chief Executive Doug McMillon said.

McMillon said “reauthorization of the assault weapons ban should be debated to determine its effectiveness in keeping weapons made for war out of the hands of mass murderers.”

Walmart’s Bartlett said it has also made clear that employees can express their concerns on gun sales and no employee’s job was in jeopardy for doing so.

A junior Walmart employee in California began a petition protesting the sale of firearms that gathered over 50,000 signatures. His access to Walmart’s emails and messaging systems was temporarily blocked.

Sales at US stores open at least a year rose 2.8 percent, excluding fuel, in the quarter ended July 31. Analysts estimated growth of 2.07 percent, according to IBES data from Refinitiv.

Adjusted earnings per share increased to $1.27 per share, beating expectations of $1.22 per share.

The retailer raised its forecast for adjusted earnings-per-share to a “slight decrease to slight increase,” from a “decline by a low single-digit percentage range.” That forecast includes the effect from the acquisition of Indian e-commerce firm Flipkart.

Online sales surged 37 percent, in line with the previous quarter’s increase and higher than the company’s expectation of 35 percent.

Walmart’s online expansion has come at a cost to profitability and losses at the US e-commerce business could rise to about $1.7bn this year from $1.4bn in 2018, according to estimates from Morgan Stanley.

Walmart is looking to sell ModCloth, the women’s apparel site it acquired two years ago, as it looks for ways to pare losses at its online business.

Total revenue was up 1.8 percent to $130.4bn, beating analysts’ estimates for $130.1bn.

Source : Reuters

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