NEW YORK (AP) — With inflation hovering near levels not seen in 40 years, higher-income Americans have turned to Walmart to slash the cost of groceries, while its lower-income customers are turning to charcuterie bartered for cheaper hot dogs and canned tuna.
That boosted Walmart’s second-quarter sales, the company reported Tuesday, but the downward shift at nearly every point along the social spectrum hurt profit margins.
And the same forces making decisions Americans are making about where to shop for groceries and what to eat are forcing Walmart to cut prices and clear vast inventories of things customers have been asking for during the pandemic; TVs, casual wear, sporting goods and a variety of other items not considered essential.
“We’re excited to see more customers choosing Walmart during this inflationary time,” said CEO Doug McMillon. “The actions we have taken to improve inventory levels in the U.S., coupled with a stronger mix of grocery sales, are putting pressure on profit margins.”
Retailers have had to keep up with shopping habits this year, which have been radically altered by both rising costs and consumers who would rather spend money outside the home as the pandemic eases.
The retailer beat Wall Street expectations, and sales in stores open for at least a year rose 6.5% as more Americans sought to lower their spending through Walmart in a variety of ways.
After being surprised by how quickly its customers were switching, Walmart said it’s making progress getting rid of excess inventory, although it remains an issue. The company said on Tuesday the decline in profits it had forecast a month ago would be less than feared.
Walmart’s shares rose nearly 6% on Tuesday.
Walmart Inc., based in Bentonville, Arkansas, is among the first major retailers to report quarterly results and is considered a key spend barometer given its size and the breadth of its customer base.
Walmart shocked Wall Street three weeks ago when it cut its earnings outlook for the first time since 2015, and shares of a company that has thrived during the pandemic plunged 10%.
The warning followed an announcement by Target, another pandemic superstar, the previous month that it was canceling orders from suppliers as its inventory piled up, untouched by consumers who didn’t want to furnish their homes as COVID-19 eased its grip.
Sales of casual clothing, televisions and other electronics that flew off the shelves into the homes of Americans sheltering locally plummeted as people resumed visiting restaurants, shows or trips.
Evidence of a huge consumer shift registered in multiple places at Walmart. Sales of the usually less expensive own-label food brands doubled from the first to the second quarter.
Walmart canceled billions of dollars worth of orders to balance its inventories, and now believes only about 15% of its total inventory growth in the second quarter was above optimal levels.
The situation stabilized somewhat during the quarter, Walmart said. It saw the influx of new customers, and lower gas prices in recent weeks offered some relief. Strong back-to-school spending helped.
Walmart Inc. made $5.15 billion, or $1.88 per share, or $1.77 excluding one-time costs and fees. That easily beat the $1.62 per share that Wall Street was targeting, according to FactSet.
It also surpassed last year’s profit of $4.27 billion.
Revenue rose 8.4% to $152.86 billion, beating industry analysts’ forecasts.
The company now expects consolidated adjusted operating income for the year to decline 9% to 11%, an improvement from the company’s earlier guidance of 11% to 13%.
Shares were up $7.13 to $139.77 a share in late morning trading.
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