Walmart sees smaller profit drop as discounts attract hard-hit shoppers

Walmart nudged up its annual profit forecast on Tuesday, partly reversing a hefty cut less than a month ago, as discounts to clear excess merchandise and lower fuel prices helped it beat expectations for quarterly sales.

The stock, which fell more than 8% this year, rose 4% in premarket trade. Rivals Target Corp, Costco and Best Buy also climbed on the news, while futures for the blue-chip Dow index cut losses.

Walmart said it now expected 2023 adjusted earnings per share to fall 9% to 11%.

The top US retailer spooked markets worldwide in July when it forecast a drop of 11% to 13%, down from previous guidance for a 1% fall, and warned consumers were pulling back on discretionary purchases at a far greater pace than feared as soaring inflation hit their spending power.

That forced Walmart to make steep price cuts on items such as apparel in a bid to reduce more than $61bn in inventory it was sitting on at the end of the first quarter.

Many other retailers including Target Corp and Best Buy Co also issued profit warnings in recent weeks as they struggle with excess merchandise.

Walmart reported inventories of $59.92bn at the end of the second quarter ended July 31, still 25% above last year’s levels.

“I think it’s going to take another quarter, maybe get into the fourth quarter a little bit, to get back to where we want to be from an overall inventory perspective,” said Walmart CFO John David Rainey.

Walmart’s total revenue rose 8.4% to $152.86bn in the second quarter, helped by demand for food and other essentials. Analysts had estimated revenue of $150.81bn, according to IBES data from Refinitiv.

Since the last round of quarterly results, prices for goods and services have shown signs of easing. The consumer price index rose 8.5% in July, less than in June, due largely to a 17% drop in fuel prices.

Sales at Walmart’s US stores open for at least a year rose 6.5%, in part due to higher prices and an easing of fuel inflation, and beat its prior forecast for a 6% gain.

But discounts on discretionary products, slowing demand for high-margin items such as appliances, electronics and clothes, and rising labour costs led to a 6.8% fall in the company’s quarterly operating income to $6.85bn.

The Bentonville, Arkansas-based retailer now expects consolidated net sales growth of about 5% and adjusted earnings to fall 9% to 11% in the third quarter. Same-store sales for Walmart US, excluding fuel, are expected to rise 3%, the company said.

Home Depot on Tuesday also reported strong quarterly sales for the second quarter, helped by steady demand for home-improvement goods from builders and handymen.

Reuters