Walmart raises its outlook as buyers look for bargains

Walmart, the largest retailer in the United States, raised its annual guidelines on Thursday, a sign it expects shoppers to continue to be drawn to its value-focused stores as they have become more selective in their purchases.

The retailer said it expected net sales to grow 3.5 percent for the fiscal year and operating income to rise 4.5 percent.

Revenue in the first quarter was $152.3 billion, surpassing Wall Street’s estimate of $141.7 billion. Both transactions and the average amount customers spent increased in the quarter.

Higher-income households continue to shop more at Walmart, the company said, following a trend its executives have proclaimed in recent quarters. The retailer said it was also gaining market share in the grocery category.

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

This week’s retail earnings reports provided a glimpse into US consumer mindsets and the state of the industry. Target, Home Depot, and TJX, which owns TJ Maxx and Marshalls, all reported first-quarter earnings that showed sales were down compared to years past, when shoppers spent more.

Home Depot lowered its full-year guidance on Tuesday, saying first-quarter sales fell 4.2 percent compared to the year before. Executives said they had expected 2023 to be a “year of moderation” for the home improvement industry, but the company’s performance was below expectations.

Target’s quarterly sales rose a modest 0.5 percent. The retailer maintained its full-year guidance, but “based on declining sales trends” in its most recent quarter, it said it planned for a broad range of sales results in the second quarter.

Total sales at TJ Maxx’s parent company increased by 3 percent. TJ Maxx and Marshalls reported an increase, but sales at HomeGoods fell 7 percent. It maintained its guidance for the full year, forecasting sales growth of 2 to 3 percent.

Analysts said the sales declines were a sign that consumers are more selective about what they buy, and that spending patterns returned somewhat to normal after becoming less predictable during the pandemic. Overall, the economy has remained resilient, with strong wage growth and job growth across a wide range of industries.

“We don’t see a collapse in sales,” said Simeon Siegel, general manager at BMO Capital Markets. “We see disappointing revenues. Consumers are still spending on the things they want to spend.”

Retailers face a profit challenge. Walmart said Thursday that its gross profit percentage, or the difference between the cost of the goods and their sales, has fallen to 23.7 percent, slightly lower than Wall Street estimates. The decline was partly because shoppers bought more groceries and products in the health and wellness category and less general merchandise.

Target reported Tuesday that its operating profit fell 1.4 percent.

Retail analysts had expected operating margins to be smaller this quarter, given more promotions to entice shoppers to spend and customers buying more items like groceries that yield lower profits.

That consumer behavior was reflected this week in April’s retail sales report. Retail sales rose a modest 0.4 percent compared to March, reversing a two-month decline. (The number is not adjusted for inflation and is sometimes revised.)

Department stores, health and personal care stores, and grocery stores all posted increases. Spending at furniture stores, electronics stores and home accessories retailers fell. Spending in restaurants and bars rose by 14.5 percent.

Restaurants and flights are usually considered discretionary, but they are also experiences that Americans spend more on. There is less emphasis on buying big items for the home, as many shoppers spent the early stages of the pandemic doing just that.

“Part of what we’re going through right now is a bit of a consumer budget rebalancing,” said Michelle Meyer, chief economist at Mastercard. “As we look ahead, should we expect this division between experiences and goods to last forever? Of course not. But there is still more catching up to do for some of these experience-based spending categories where consumers are still very keen to meet their continued demand.”

However, some analysts are skeptical that consumer spending will remain resilient. Oren Klachkin, a leading US economist at Oxford Economics, wrote in a note to clients that April’s retail sales report showed that shoppers were becoming more selective.

“As the main driver of GDP growth continues to hum, we see storm clouds gathering on the horizon,” said Mr Klachkin. He expected a weaker labor market, less consumer savings, tightening credits and high prices that would cause shoppers to spend less in the second half of the year.