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Walmart delivers big in 2nd quarter

Published:Friday | August 16, 2019 | 12:17 AM
A police car turns into the parking lot at a Walmart store in Springfield, Missouri.
A police car turns into the parking lot at a Walmart store in Springfield, Missouri.

Walmart offered a dose of optimism amid growing concerns over weakening economic growth by raising its annual outlook after a strong second quarter.

Sales at stores opened at least a year rose 2.8 per cent, its 20th consecutive quarter in the right direction as the world’s largest retailer continues to expand its grocery delivery services. Online sales in the United States increased 37 per cent.

Walmart’s chief financial officer Brett Biggs told reporters on a call that the consumers’ financial health remains “solid.”

The encouraging news from Walmart, considered a barometer of consumer health, came on the same day the government released a report that showed Americans had spent more at retail stores and restaurants in July. Retail sales rose a healthy 0.7 per cent last month after a 0.3 per cent gain in June, the US Commerce Department said.

The pair of reports eased fears over a weakening economy and a persistent trade war with China that have roiled financial markets but have yet to weaken consumer confidence. Steady job growth and modest increases in wages have helped to prop up spending.

Walmart and other major retailers have been left largely unscathed by the first several rounds of tariffs since they focused more on industrial and agricultural products. That is changing and retailers are bracing for a 10 per cent tariff targeting goods like toys, clothing and shoes. The tariff has been delayed until December after the Trump administration voiced concern about the impact on consumers and businesses during the holiday season.

Being forced to raise prices, or eat additional costs because of new tariffs, is becoming a significant threat for Walmart and everyone else with indicators flashing warnings signs of a coming recession

But Walmart’s latest earnings report shows it has been able to keep prices low even as its costs are rising and it’s pushing its online operations aggressively to counter Amazon.com. For example, the discounter offered limited free next day delivery in May with an order of at least US$35 and plans to expand that service nationwide this year.

During a call with reporters Thursday, Biggs said that it has an advantage over other retailers because it can spread price increase across a wide breadth of items. It says it’s considering increases on an item by item basis.

Other retailers haven’t been so lucky. Macy’s on Wednesday said that its customers are baulking at paying more after the company hiked prices on some goods like furniture to offset a 25 per cent tariff implemented on them in May. Shares of Macy’s plunged 13 per cent after it cut its outlook for the year.

J.C. Penney, which has long been struggling, reported a worse-than-expected 9 per cent drop in sales at stores opened at least a year for the quarter. That figure was dragged down by its exit of major appliances announced earlier in the year. Shares of J.C. Penney surged Thursday, however, as the department store narrowed its second quarter loss and trimmed inventory.

Target, Kohl’s and Nordstrom are expected to report their earnings results next week.

Neil Saunders, managing director of GlobalData Retail, says that Walmart has “plenty of firepower for any battles that may lie ahead.”

“At present there is just no evidence of a material downturn,” he wrote in a report. “In our view, it remains the case that performance remains largely the responsibility of the strategies of individual retailers and cannot be blamed on external circumstances.”

Walmart reported quarterly profit of US$3.61 billion, or US$1.26 per share, after reporting a loss in the same period a year earlier. Per-share earnings, adjusted for non-recurring costs, were US$1.27. That’s a nickel better than Wall Street had expected, according to a survey by Zacks Investment Research.

Revenue was US$130.38 billion.

Walmart expects a slight decrease to a slight increase in earnings per share for the current fiscal year compared with a year ago. It had originally forecast a decline in the low single digit percentage range.

Walmart is still reeling from a mass shooting at one of its El Paso, Texas stores that killed at least 22 people late last month. The tragedy raised more pressure on Walmart end gun sales in its stores, though it’s given no indication that it plans to do so.

CEO Doug McMillon said that company “will be thoughtful and deliberate in our responses,” and last week it ordered workers to remove video game signs and displays that depict violence from stores nationwide.

In a presentation Thursday, McMillon said that the company plans to take additional actions to create a safer environment in its stores and is considering broader issues related to gun violence. Walmart accounts for approximately 2 per cent of all firearm sales in the U.S. annually.

Shares of Walmart Inc were up nearly 5 per cent, or US$4.87 to US$111.07 in morning trading Thursday.

AP