Tue. Dec 6th, 2022

Walmart Inc on Tuesday raised its annual sales and profit forecast as demand for groceries remained despite higher prices, while discounts on clothing and electronics helped it cut excess inventory ahead of a busy holiday season.

The company also raised its full-year net sales expectations ahead of the holiday season and announced a new $20 billion share buyback plan, sending its shares up 7.3 percent in premarket trading.

Its results boosted shares of other major retailers, including Target Corp and Macy’s Inc.

Amid persistent inflation, investors have been nervously watching consumer spending during the key holiday season, when retailers make more than a third of their annual profits.

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“In this period of macroeconomic uncertainty, we believe we are well-equipped to continue to gain market share in an environment where consumers have to spend more of their dollars,” Chief Financial Officer John David Rainey said during a call with investors.

The world’s largest retailer by sales forecast U.S. same-store sales, excluding fuel, to rise about 3 percent, below estimates of a 3.4 percent increase.

Rainey said the guidance assumes that consumers may slow spending, particularly in general merchandise categories, due to continued increases in food costs.

The company’s comments follow those of FedEx and Amazon, which have also warned of weak holiday season demand in recent weeks.

For the full year, the Bentonville, Arkansas-based chain expects net sales to grow 5.5 percent, above its previous forecast of a 4.5 percent increase.

Walmart also said it was better prepared on the inventory front with many of the challenges it faced earlier this year “cleared up.” The company’s stock rose 13 percent to $65 billion on a value basis, which CFO Rainey said was 70 percent driven by inflation, but on a unit basis it was “much lower.”

Walmart’s strong results prove that its operating model excels in times of economic strength…Walmart is a recession-proof retailer,” said Guru Hariharan, founder and CEO of research firm CommerceIQ.

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While US consumer prices rose less than expected in October, a recent survey shows that consumer sentiment fell in November and inflation expectations rose.

CFO Rainey told Reuters the company continued to see inflation in the food industry in the mid-teens, while general commodity inflation “has eased quite a bit.”

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This continued rise in food prices has meant Americans are switching from higher-quality proteins to beans, hot dogs, peanut butter and brand names, he added.

That helped it post comparable sales growth in the third quarter, even as profit margins were squeezed. Comparable sales at Walmart in the US rose 8.2 percent.

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“Shoppers who came to us less often in the past are now shopping with us more often, including higher-income customers,” Walmart Chief Executive Officer Doug McMillon said during a call with investors.

Average transactions at U.S. Walmart rose 2.1% in the third quarter ended Oct. 31, compared with a 1% increase in the previous quarter, while average receipts rose 6%.

Walmart posted a third-quarter loss of $1.8 billion due to $3.3 billion in legal settlements to settle US state and local lawsuits accusing it of mishandling opioid painkillers.

Reuters reported Walmart’s settlement, along with those of CVS Health Corp and Walgreens Boots Alliance Inc earlier this month.

(Reporting by Uday Sampath in Bengaluru and Siddharth Cavale in New York; Additional reporting by Arriana Mclymore; Editing by Sriraj Kalluvil, Chizu Nomiyama and Nick Zieminski)