Walmart Raises Its Outlook as Shoppers Look for Bargains

Walmart, the largest U.S. retailer, raised its full-year outlook on Thursday, suggesting shoppers expect to continue to gravitate toward value-oriented stores and become more selective about their purchases. ing.

The company said it expects net sales to grow 3.5% this year and operating profit to grow by up to 4.5%.

First-quarter sales were $152.3 billion, beating Wall Street’s $141.7 billion estimate. Both customer transaction value and average spend increased during the quarter.

High-income households continue to shop more at Walmart, the company said, reflecting a trend that executives have noted in recent quarters. The company said it also gained market share in the grocery category.

“We had a strong quarter,” Walmart Chief Executive Doug McMillon said in a statement Thursday.

This week’s retail earnings report provided a glimpse into the mindset of US consumers and the state of the industry. TJX, which owns Target, Home Depot and TJ Max & Marshalls, all reported first-quarter results, with sales slowing compared to years when shoppers had more freedom to shop. showed that

Home Depot on Tuesday cut its full-year outlook, saying first-quarter sales were down 4.2% from a year earlier. Executives said 2023 had been expected to be a “moderate year” for the housing improvement sector, but the company’s performance was below expectations.

Target’s quarterly sales were up a modest 0.5%. The company maintained its full-year outlook, but said it planned broader sales results in the second quarter “given the slowdown in sales trends” in the most recent quarter.

Overall parent company sales for TJ Maxx increased 3%. TJ Maxx and Marshalls increased, but HomeGoods sales fell 7% of his. It maintained its full-year outlook, expecting sales to rise 2% to 3%.

Analysts said the drop in sales is a sign that consumers are becoming more picky about what they buy and spending patterns that have been difficult to predict during the pandemic are approaching some degree of normalcy. Stated. The economy remains generally resilient, wage growth is strong and employment is increasing across a wide range of industries.

“We are not seeing a collapse in earnings,” said Simeon Siegel, managing director of BMO Capital Markets. “On the bottom line, we’re seeing disappointment. Consumers are still spending what they decide they want to spend.”

Retailers face profit challenges. Walmart said Thursday that its gross margin — the difference between cost of goods and sales — fell to 23.7%, just below Wall Street expectations. Part of the decline was due to shoppers buying more groceries and products in the health and wellness category and less general merchandise.

Target said Tuesday that operating profit fell 1.4%.

Retail analysts expect corporate profit margins to dwindle further this quarter, given more promotions to entice shoppers to spend and customers buying more low-margin items such as groceries. ing.

That consumer behavior was reflected in April’s retail sales report released this week. Retail sales increased slightly by 0.4% from March, reversing two consecutive months of decline. (This figure is not adjusted for inflation and is subject to revision from time to time.)

Department stores, health and personal care stores, and grocery stores all recorded increases. Spending at furniture stores, electronics stores and home centers decreased. Spending at restaurants and bars increased by 14.5%.

Restaurants and airline tickets are usually considered discretionary, but these are also experiences that Americans spend more money on. Considering that many shoppers spent the early stages of the pandemic buying big-ticket items for their homes, it doesn’t matter as much.

“Part of what we’re experiencing right now is that the consumer budget is a little out of balance,” said Michelle Meyer, chief economist at Mastercard. “Looking to the future, should we expect this division between experience and product to continue forever? Of course not. Some experience-based spending categories need more catch-up.”

But some analysts are skeptical that consumer spending will remain resilient. Oren Kurachkin, chief U.S. economist at Oxford Economics, wrote in a note to clients that April’s retail sales report showed shoppers had become more selective.

“While the main engine of GDP growth remains strong, we are seeing storm clouds gathering on the horizon,” Krachkin said. He expects shoppers to spend less in the second half of the year due to a weak labor market, lower consumer savings, tighter credit and higher prices.

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