When Walmart reports quarterly earnings Thursday, investors will scour sales numbers and executives’ comments for clues about whether rising prices are making shoppers skittish.
The retail giant is closely watched as a bellwether of inflation.
“Any sort of wavering in behavior, they’re going to detect it,” said Steph Wissink, a retail analyst at Jefferies. “The voice of Walmart carries more weight in the context of ‘How healthy is the consumer?'”
Inflation has risen rapidly, raising questions about what that means for Americans’ spending habits after a pandemic- and stimulus-fueled spending spree. The consumer price index rose by 7.5% in January compared with a year earlier, according to the Bureau of Labor Statistics, and marked the fastest increase 40 years. Food costs have increased 7% on a 12-month basis and are closely watched because groceries are households’ most frequent purchases.
Major consumer goods companies, including PepsiCo, Hershey, Coca-Cola and Proctor & Gamble, have passed on price increases to customers — and argued brand loyalty has kept sales strong. Pepsi executives said on an earnings call last week that shoppers will pay more for their favorite snacks and beverages, such as Gatorade. Many of those products are on Walmart’s shelves.
Wissink, however, said the backdrop is changing: Consumers spent freely during the holiday season, though challenged by out-of-stocks, shipping delays and other supply chain snarls. Walmart’s report, which will capture its earnings for the three months ended Jan. 31, will include the holiday season. But investors will be most eager to hear about trends over the last few weeks.
Wissink said consumers may be starting to think twice before opening their wallets as prices creep higher week after week, and they no longer receive stimulus checks from the government.
Walmart has a unique window into consumers’ mindset: Nearly 90% of Americans live within 10 miles of its stores, cutting across different states, geographic areas and income levels. Food, one of the major categories hit by inflation and a frequent purchase for households, accounts for nearly 60% of its net sales in the U.S., based on sales figures from the nine months of the fiscal year.
Analysts are mixed about whether inflation will help or hurt Walmart’s sales — and its margins.
Wissink said lower-income customers may buy less, but Walmart will pick up a larger portion of middle- and upper-income shoppers’ wallets because of the retailer’s reputation for value. She has a buy rating on the company’s shares and her price target is $184, about 37% above where the stock is currently trading. That’s higher than analysts’ average price target of $165.44, according to Refinitiv.
Scot Ciccarelli, a retail analyst at Truist Securities, however, said Walmart customers who feel pinched have few places to turn to for lower prices, besides perhaps privately owned German discounter Aldi or dollar stores like Dollar General. He said that translates to…
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