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U.S. consumers are shrugging off recession fears, flocking to Walmart WMT 6.60%increase; green up pointing triangle stores for low-cost groceries and even splurging on electronics and new cars in July.
The country’s largest retailer on Thursday posted strong quarterly sales and its executives said they don’t see signs of fraying demand. Meanwhile, the latest government readout on U.S. retail spending—which includes purchases at restaurants and car dealers—showed the strongest gain since January 2023.
Two weeks ago, a rise in unemployment, a sudden drop in the stock market and warnings from some big companies stoked fears the U.S. was sliding into recession. The results on Thursday mollified those concerns—and the stock market is rapidly making back its lost ground.
The S&P 500 gained 1.6% on Thursday, led by a 6.6% jump in Walmart’s shares, which closed at an all-time high.
“We have not seen any incremental fraying of consumer health,” said John David Rainey, Walmart chief financial officer.
Walmart executives said shoppers are gravitating to deals as well as the convenience of online order pickup and delivery, which led to customer gains, especially among higher-income shoppers. In a sign of confidence, they raised their sales and profit targets for the remainder of the fiscal year.
Market-share gains at Walmart—known for its mammoth stores and low prices—add fuel to the idea that while shoppers are weary about inflation, they are still spending and some are willing to pay for premium services such as grocery delivery. Walmart even saw a slight pickup in its general merchandise category—discretionary items such as electronics and home goods—which has been in decline for 11 quarters.
Strong July retail sales
The government report on retail spending Thursday suggested consumers started the third quarter on a solid footing.
Retail sales rose a seasonally adjusted 1% in July from the month before, the Commerce Department said. Much of the gain was due to a rebound in spending on vehicles, after a drop in June when dealerships were hit by a cyberattack at software firm CDK Global, disrupting their ability to sell or repair cars. Excluding vehicle sales, overall retail sales rose a more modest 0.4% last month.
Joseph LaVorgna, chief economist at SMBC Nikko Securities, said, “You’re looking at a U.S. consumer that is still spending but is very downbeat,” according to measures of consumer sentiment. The University of Michigan’s consumer-confidence survey was little changed in July, with respondents feeling guarded about still-high prices.
“There is no denying that particularly for lower and lower-middle income households, the cumulative price increases we’ve seen in the last few years have definitely taken a toll,” said Richard Moody, chief economist at Regions Financial.
Other government data out Thursday pointed to an economy that remains relatively resilient. Initial jobless claims, a proxy for layoffs, slid by 7,000 to 227,000 in the week ended Aug. 10—the lowest level since early July, according to the Labor Department.
Walmart raises outlook
At Walmart, sales were consistent month to month in the quarter, Rainey said. Through a long inflationary period, shoppers continue to gravitate to deals, such as buying more store brands, he said, but not more than in recent quarters. Consumers are showing, “I wouldn’t say strength, but lack of weakness,” he said, which is part of why Walmart is raising its estimates for the year.
Walmart’s strong results add to a mixed economic picture. Some U.S. giants, such as Home Depot, McDonald’s and Disney, have sounded warnings about flagging consumer spending after years of pent-up pandemic demand. Rival Amazon.com said customers have been more likely to look for deals and lower-price essential items after it reported that year-over-year growth in its online stores segment slowed from the first quarter.
This week, Home Depot executives said they expected demand to stay tight through the rest of the year as homeowners wait for lower interest rates before pursuing big projects. The retailer cut its outlook for comparable-store sales, saying it now expects a 3% to 4% decline, instead of a 1% drop. The company also lowered its earnings targets.
However, Walmart lifted its profit and sales expectations for the full year. It now expects net sales to increase 3.75% to 4.75%, up from a previous estimate of a 3% to 4% increase. Adjusted earnings per share are expected to increase to $2.35 to $2.43, up from a previous expectation of $2.23 to $2.37.
While overall pricing continues to rise slightly, Walmart has held its grocery prices flat, which has attracted shoppers, said executives. Walmart has also seen some of its product suppliers lower prices, a boon to gross profits, said Rainey, the CFO.
The company logged strong sales in its superstores and Sam’s Club warehouses as well as online. Its global e-commerce sales increased by 21% in the July quarter, helped by online orders fulfilled through stores and third-party marketplace growth.
Overall, for the July quarter, Walmart reported operating income rose 8.5% to $7.9 billion on revenue of $169.3 billion, up 4.8%. Its net income fell from a year ago when it booked large investment gains.
Write to Sarah Nassauer at Sarah.Nassauer@wsj.com and Harriet Torry at harriet.torry@wsj.com
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Appeared in the August 16, 2024, print edition as 'Robust Retail Sales Propel Stocks'.
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