Walmart Gets Cautious on Economic Outlook, Sees Lower 2023 Performance
Walmart Inc. issued a cautious economic outlook for 2023 Tuesday. The retail bellwether predicted full-year earnings below expectations and warned that consumers’ cautious spending could lead to lower profit margins.
The world’s largest retailer saw its shares rise 0.5 percentage in early trading, despite the fact that it had suffered most of its premarket losses. The company is continuing to fight price-hikes by its suppliers in an environment of high inflation.
In the United States, higher consumer prices and rising food and rental costs have led to concerns that the Federal Reserve may increase borrowing costs in order to reduce domestic demand. This could lead to an economic slowdown in the second half.
“There’s still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we’ve not been in a situation like this where the Fed is raising at the rate that it does,” John David Rainey, Chief Financial Officer, spoke to Reuters.
“So, that makes us cautious on the economic outlook because we simply don’t know what we don’t know.”
According to Refinitiv IBES data, Walmart expects earnings to range from $5.90 to $6.05 per share for the year to January 2024. This is below analysts’ estimates at $6.50 per share.
According to the company’s forecast, there is a 14-cent accounting charge that moderating inflation in key categories of merchandise and lower inventory levels at Walmart U.S. and Sam’s Club will have an estimated impact on the forecast.
Home Depot also predicted lower-than-expected annual profits Tuesday due to soaring home-improvement product prices.
Doug McMillon, Walmart’s Chief Executive Officer, stated that he expected to be able to make a profit after the earnings call. “stubborn inflation” Dry grocery and products made for immediate consumption to have some “mixed” Impact this year In December, McMillon said he “did not like” Manufacturers wanted to include more price increases.
Walmart’s margins have been impacted by being extremely competitive in pricing. But they need to do it to drive traffic to their stores, Eric McNew, portfolio manager at Summit Global Investments, stated.
“The consumer wants a deal. They want to save. They want the allure of savings and Walmart provides that,” McNew, whose company holds around 350,000 Walmart shares, said McNew.
Gaining Share
Rainey stated that inflation-squeezed customers are shifting to buying more food and other consumables from general merchandise. This will continue to impact margins. Rainey stated that toys, electronics, home and apparel are still weak areas.
However, analysts and investors agree that Walmart’s environment is favorable because a growing number of Americans feel the inflation bite, Arun Sundaram, CFRA analyst said.
“We’re gaining share across income cohorts, including at the higher end which made up nearly half of the gains we saw in the U.S. again this quarter,” McMillon stated on the call that it was also grabbing more of the wallet at Sam’s Club.
Walmart’s investors, who own more than 5,000 stores across the United States, are keen to see if they can negotiate lower prices with suppliers and avoid competition from Target Corp., which sells relatively higher-priced products.
Rainey explained that the company understood that suppliers are dealing with high costs. Rainey said that the company uses data and leverage metrics to negotiate with suppliers and pass lower prices on to consumers.
Procter & Gamble as well as KitKat maker Nestle have warned about further price increases in the coming year.
“I’m frustrated by pricing. I’m sure our customers are too. I’m sure consumers are too, but that’s the environment that we’re living in,” General Mills CEO, Cheerios cereal maker, spoke at a conference Tuesday.
Walmart reported strong holiday demand for the quarter ending Jan. 31 and total revenue of $164.05 Billion, an increase of 7.3 percent over last year. The adjusted earnings per share for the quarter were $1.71. This is a significant improvement on the $1.51 average expectation.
“Customers are still spending money,” McMillon said.
He said, “It’s not as clear what looks like the back half of this year.”
By Siddharth Cavale
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