Wal-Mart, the largest US retailer, on Thursday reported stronger-than-expected growth in sales and profits as it attracted more shoppers willing to open their wallets, in a sign that consumer spending, the engine of the US economy, remains resilient.
Walmart’s results capped a week of major retailers opening their books, including Home Depot, Target and TJX, which owns TJ Maxx and Marshalls. Home Depot and Target reported declines in their latest quarterly sales, while TJX’s off-price retailers reported a larger-than-expected increase in sales and the company revised its full-year forecast higher, as did Walmart.
The earnings provide a glimpse into consumers’ buying habits as they continue to beat stubborn inflation and shift their spending from items like furniture and electronics to services like travel, dining out and going to the movies. Higher prices brought new shoppers to Wal-Mart, in the form of higher earners drawn to cheap groceries and other supermarket essentials. By attracting higher-income shoppers — a trend Walmart executives have advocated for in the past few quarters — the retailer “had an opportunity to drive conversion in more discretionary categories,” said Doug McMillon, CEO of Wal-Mart.
“It’s no surprise to us that the consumer is as healthy as it is,” said David Silverman, retail analyst at Fitch Ratings. “I think what surprised us is that the consumer is still spending on goods while clearly spending more and more on services, especially this summer.”
Wal-Mart’s comparable sales rose more than 6 percent in the second quarter from a year earlier, comfortably beating Wall Street expectations. Grocery sales were particularly strong, the company said, while spending on general merchandise was down slightly.
Wal-Mart expects to continue to attract more shoppers, even as economic headwinds such as inflation and the resumption of student loan payments squeeze household budgets. Wal-Mart reported a revenue increase of nearly 6 percent in the second quarter; It expects sales for the full year to grow between 4 and 4.5 percent.
“We’re seeing families who know what they’re spending on,” McMillon said on a call with analysts. “They prioritize and spend on the things they care about the most.”
Executives noticed that shoppers were buying more specialty brands, groceries, and meal options to eat at home.
Foot traffic and the amount spent per ride rose in the most recent quarter from Walmart Stores in the US. The company also recorded a 24 percent increase in e-commerce sales. It raised its full-year growth forecast for the second straight quarter.
Executives at a variety of retailers have described a situation where consumers are anxious but still willing to spend.
Walgreens Boots Alliance CEO Rosalind Brewer recently told analysts that “a more cautious, value-driven consumer” has weighed on sales. She said clients were “feeling the pressure” of rising inflation and interest rates, as well as general economic uncertainty and the end of several pandemic stimulus measures. “They’re cutting back on discretionary and seasonal spending, and they’re responding aggressively to promotional activity,” she said.
However, consumer spending has largely held up, driven by a flexible labor market and rising wages. Retail sales in July rose 3.2 percent from a year earlier, according to data released on Tuesday, beating economists’ expectations. In July, many retailers run promotions around Amazon Prime Day, which has become an important sales event during the summer.
“Fears of a recession, or at least a severe recession, have largely subsided, and the consumer is generally healthy,” Home Depot CEO Ted Decker said Tuesday on an earnings call.
But retail industry watchers note that resuming student loan payments in October could weigh on consumer spending.
“The upcoming resumption of student loan payments will put additional pressure on the already strained budgets of tens of millions of families,” Michael Videlek, Target’s chief financial officer, told analysts Wednesday. “Against this background, we remain cautious in our planning.”
Once back-to-school spending ends, retailers and analysts will look to the crucial holiday shopping season to gauge the health of American consumers. Shoppers will start to see those seasonal products, such as lanterns, ornaments, and artificial Christmas trees, being introduced within a few weeks.
“Normally when back-to-school is strong, it bodes well for what happens around Halloween and Christmas,” said Mr. McMillon, president of Wal-Mart.
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