Walmart’s Outlook Struck A Cautious Tone

Walmart’s Outlook Struck A Cautious Tone

9 months ago2 mins

Walmart reported strong quarterly results on Tuesday, but it was the firm’s unpromising outlook that grabbed investors’ attention.

What does this mean?

The world was in a funk last quarter, but Walmart soldiered on. See, shoppers might have been shunning nice-to-haves like electronic goods, but the firm’s grocery offerings kept the aisles full of customers. And with the retail colossus cutting prices in a bid to sell off last year’s overstocked inventory, those bargains didn't just bring people through the doors: they had those doors practically swinging off the hinges. All in all, sales at US stores open longer than a year grew by 8%, which helped overall revenue and profit sail past expectations. Mind you, investors still ditched their shares initially when they caught wind of Walmart’s outlook: that underwhelming forecast suggested that annual profit could fall for the second year in a row.

Walmart same store sales

Why should I care?

Zooming in: Imperiled profit.

Those worries could be well-founded. Last quarter's sales were propped up by low-margin merchandise like groceries and discounted goods, which could explain why profitability took a dip. What's more, consumer savings rates are currently hovering at around half their pre-pandemic levels, meaning that customers probably won’t start splashing the cash anytime soon. Add in price hikes from Walmart's suppliers, and it’s no surprise the firm thinks its profit margins could be in danger.

The bigger picture: Retail’s reeling.

Walmart’s expecting trouble, and Home Depot already has it in spades. On Tuesday the firm announced that it missed sales expectations for the first time since the pandemic last quarter, and predicted that its sales won’t grow at all in 2023. Putting the forecasts of the two titans together, it doesn’t take a genius to work out that retail as a whole could be a little shaky this year – which might be why an index tracking some of the biggest companies in the retail space fell when the news broke.

Walmart and Home Depot stock
Source: The Wall Street Journal, FactSet


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