Walmart lifts guidance as richer consumers go bargain hunting

Walmart is gaining popularity with richer consumers looking for savings at a time of high inflation, boosting its third-quarter results even as it agreed to pay £3.1bn to states that had sued over its role in the US opioids crisis. The cost-cutting retailer, known for its appeal to cash-strapped families, took a larger share of Americans' grocery budgets in the three months to October 31. Three-quarters of those gains came from shoppers with annual incomes of more than £100,000, executives told analysts.

"Regardless of income levels, families are more price-conscious now," said Doug McMillon, Walmart's chief executive. Like-for-like sales in its home market grew 8.2 per cent excluding fuel over the quarter. That compares with a year-on-year increase in US consumer prices of 7.7 per cent in October[1], a month when inflation in food prices hit 10.9 per cent.

Walmart[2] shares closed 6.5 per cent higher at a six-month high of £147.44, boosted by news of a new £20bn share buyback plan and a better than expected 8.7 per cent increase in group revenues to £153bn. McMillon signalled the company was working through the excess inventory that unpredictable spending patterns had left it with earlier in the year. The retailer had "significantly improved" its inventory position in the quarter, he said in a statement on Tuesday, and would make further progress in the fourth quarter.

The more bullish outlook came as Walmart announced it would pay £3.1bn to settle states' claims that it had contributed to the US opioids crisis by failing to regulate prescriptions of highly addictive painkillers at its stores. Weeks after announcing negotiations on similar settlements[3] with the pharmacy chains CVS and Walgreens, New York attorney-general Letitia James said such retailers had "played an undeniable role in perpetuating opioids' destruction". Walmart would be subject to "robust oversight" to prevent fraudulent prescriptions in future, she noted.

Unlike CVS and Walgreens, which will between them spread almost £10bn of payments over 10 to 15 years, lawyers involved in the settlement said Walmart would pay "the vast majority" within a year of it being agreed. The settlement led Walmart[4] to report a net loss of £1.77bn for the quarter, or a loss of 66 cents per share. Excluding the opioids payments and losses on equity investments, adjusted earnings were £1.50 a share, ahead of Wall Street's £1.32 a share consensus.

The company expects net sales growth to slow to 3 per cent in the fourth quarter, in part because of currency fluctuations, with US comparable sales of 3 per cent and a 3 to 5 per cent decline in adjusted earnings per share. That would still leave it on track to beat its previous forecasts for full-year sales and earnings growth, however. "The consumer is stressed," said John David Rainey, Walmart's chief financial officer, saying the company was planning on the basis that consumer spending could slow further, particularly in general merchandise.

Full-year adjusted earnings per share are now expected to decline 6 to 7 per cent, rather than 9 to 11 per cent as it projected three months ago.

Additional reporting by Jamie Smyth in New York

References

  1. ^ 7.7 per cent in October (www.ft.com)
  2. ^ Walmart (www.ft.com)
  3. ^ similar settlements (www.ft.com)
  4. ^ Walmart (www.ft.com)