By Juveria Tabassum and Nicholas P. Brown
May 21 (Reuters) – Walmart stuck to its conservative annual sales and profit targets on Thursday, as rising fuel costs drive value‑seeking shoppers to its low-priced groceries and essentials.
U.S. retailers have flagged growing pressure on consumer spending this year, with sentiment falling to a record low in May and inflation posting its largest gain in three years.
Walmart has been largely insulated from the impact of weak spending as Americans shopped more at its aisles and website for cheaper groceries.
However, with fuel price touching $4 a gallon due to the Iran war, pressure is expected to increase on U.S. consumers if inflation stays high.
“If the current elevated cost environment persists, we’d expect somewhat higher retail price inflation in Q2 and the second half of the year,” said Walmart CFO John David Rainey on a post-earnings call.
The company retained its annual net sales growth target of 3.5% to 4.5% and adjusted earnings per share of $2.75 to $2.85.
Analysts had called CEO John Furner’s first annual forecast conservative in February, expecting the company to raise them through the year.
The company’s shares were down about 2% in premarket trading as it also forecast second-quarter sales and profit below estimates.
“Walmart has been one of the few mega-cap retail names trading near multi-year highs, and an affirmed outlook for the full year simply was not enough to push shares higher,” said Bryan Hayes, stock strategist at Zacks Investment Research.
VALUE-MINDED CONSUMERS FLOCK TO WALMART
“The consumer, especially here in the US, they’re telling us they’re feeling some pressure and they’re looking to Walmart for value,” said Furner on a post-earnings call.
The company was extending price rollbacks it started in the second half of last year, he said.
Walmart’s average transactions were up 3% in the first quarter from a 1.6% rise a year ago. On the flip side, growth in its average ticket, amount spent per visit, slowed to 1.1% from 2.8% a year ago.
“The translation here is that Walmart is taking real traffic share rather than simply riding price inflation,” said Hayes.
Smaller rival Target raised its annual sales forecast on the back of its nascent turnaround plan, but executives called for some caution, while grocers Kroger and Albertsons provided conservative annual forecasts.
FUEL SHOCK CRIMPS MARGINS
The Iran war has also pushed up costs of some raw material such as resin and other packaging goods, further pressuring supply chains still recovering from the sweeping tariffs on imports last year.
Higher fuel costs impacted Walmart’s operating income in the first quarter by about $175 million, and the company said it tried to absorb these costs in its delivery fulfillment operations to keep prices low.
Walmart’s U.S. gross profit margin grew 29 basis points, helped by growth in its membership revenue and advertising, but partly offset by higher fuel costs.
Its adjusted earnings per share for the first quarter was 66 cents, in line with estimates.
It expects second-quarter net sales to increase 4% to 5%, compared with estimates of a 5.09% rise and adjusted earnings per share of 72 cents to 74 cents, versus expectations of 75 cents, according to data compiled by LSEG.
Walmart, which topped first-quarter U.S comparable sales estimates, has been attracting more higher income shoppers who are seeking convenience and signing up for its delivery services.
Ecommerce sales jumped 26% in the first quarter and its contribution to total sales was up sharply from a year ago.
“Our results reflect our continued focus on delivering across the enterprise — better shopping experiences, a broader assortment, and faster delivery,” Furner said in a statement.
(Reporting by Juveria Tabassum in Bengaluru and Nicholas P. Brown in New York; Editing by Arun Koyyur)
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