Walmart’s Stellar 2nd Quarter

Inflationary Environment

US citizens everywhere are looking for ways to deal with inflation, which hit 9.1% in June. Gas, food, and clothes prices have all gone up and many Americans have noticed. In order to save money, many have been buying less stuff and sticking to the essentials. To retain customers, stores like Walmart and Target have tried to cut prices down so people will buy more. Target’s second quarter revealed drastic results. They reported a 90% decline in their profit. Since Target and Walmart are similar stores, one might expect Walmart to have similar results. 

A Dire Profit Warning

Walmart sent out a profit warning because of the inflation's impact on their customers' spending. They had originally anticipated a slight decrease by 1% for the full year, but by the end of the first quarter they expected a 8 - 13% decrease, leading them to send out the warning. The warning caused their stock to drop by 8%. With inflation the highest it’s been in 40 years, Walmart’s profit has been lower because people aren’t spending as much money. People have stopped buying in bulk and they are making many slight adjustments to their usual grocery list. For example, consumers are buying less expensive meat like steak and beef and resorting to chicken and canned tuna. As companies monitor these new shopping habits, they make predictions on how much their sales will grow or decline. 

Rich People to the Rescue

In early August, Walmart reported their second quarter earnings. Second quarter profit was above and beyond their expectations. Wall Street was relieved, especially after the bleak profit warning in July. Instead of decreasing by 13%, Walmart’s profit grew 6.5%. Compared  to 2019 and 2020 when the profits were around 2 - 4%, this is a major improvement. How did this happen? Among many things, a great back-to-school season full of lots of consumer activity helped. Additionally, fuel has become cheaper, helping consumers with their budgeting. Interestingly, many wealthier citizens also started to search for better bargains. They’ve left higher priced grocery stores to start shopping at Walmart. CFO John Rainey reports that about 75% of customers are making $100,000 or more annually. These wealthier consumers have helped Walmart’s revenue make large gains. It's clear many consumers are searching for bargains as housing and food prices soar. Even wealthy consumers have started choosing the least expensive foods to save money during this inflationary period. 

Future Plans

This quarter Walmart did well, but what are their plans for the future? Walmart has been looking for new ways to keep customers and gain more, to ensure their future sales will stay successful. They’ve started a subscription service called Walmart +. Any member gets unlimited access to the streaming service Paramount +. Walmart + also offers exclusive rewards at their stores and any stores they own including Sam’s Club. The application mainly helps consumers shop for items online and in store. Walmart also gives large discounts to sell inventory to make room for more. They have been continuously slashing costs of food, clothes and general necessities as much as they can. They want people to purchase everything they have in stock. Their inventory on hand had shot up to 32% since the quarter before. They have been doing larger clearance sales to clear their overstock. With Halloween on the way and Thanksgiving and Christmas around the corner, they need room on the shelves. Holiday season typically entails high sales. Despite the odds, Walmart seems to have a successful year ahead of them.