As the back-to-school season kicks off and consumers navigate the ongoing effects of inflation, analysts eagerly await the financial results of Walmart, the nation’s largest retailer. While recession fears have somewhat subsided, the impact of rising prices remains a concern.
What to Expect
Earnings: Analysts polled by FactSet predict that Walmart will earn $1.71 per share, while crowdsourced estimates from Estimize suggest earnings per share of $1.75.
Revenue: FactSet estimates project revenue of $160.2 billion for the quarter, whereas Estimize forecasts sales of $161.1 billion.
Stock Movement: Despite a slight 0.4% dip in shares on Wednesday, Walmart’s stock has seen a 10.3% increase so far this year.
Analyst Insights
Leading up to the earnings announcement, Wall Street analysts have expressed a favorable outlook on Walmart compared to its competitors. The retail giant’s size advantage and affordability have positioned it as a go-to destination for both low-income and high-income customers seeking relief from inflationary pressures.
However, the discretionary spending categories such as clothing, toys, and laptops have suffered as a result. Analyst Bill Kirk from Roth MKM noted that Target, which relies more heavily on discretionary items compared to Walmart, has experienced the impact of economic trends resembling a recession without being officially declared one.
Value-Oriented Retailers Thrive in the Current Environment
According to Jefferies analysts, in a research note on Friday, the current environment favors value-oriented retailers. Although consumer foot traffic to physical stores has remained steady, low-income consumers continue to face challenges. This is mainly due to the expiration of additional food-assistance benefits provided during the pandemic earlier this year.
On the other hand, Stifel analysts conducted a survey and found that customers have positive spending intentions for the early part of this month. However, compared to last year, these customers plan to spend 16% less on back-to-school purchases.
Despite this decrease, the largest chains in the market are successfully holding onto their market share. Furthermore, wealthier shoppers are still favoring Walmart and spending more at the retail giant.
In the words of the analysts at Stifel, “Survey respondents indicate they continue to shop at the largest retailers, likely reflecting their perceived value proposition and convenience.” Their analysis specifically highlights Walmart as having the highest shopping intentions relative to its peers. Interestingly, Walmart is also retaining higher-income shoppers earning more than $100,000/year.
In fact, 71% of respondents who have shopped at Walmart since early February fall into this higher income bracket. This is noteworthy because Walmart demonstrates the narrowest spread between higher and lower-income shoppers when compared to competitors such as Costco and Target. This suggests that Walmart has been successful in recruiting and retaining the highest earners.
In conclusion, value-oriented retailers are thriving in the current environment, with Walmart leading the way by appealing to both low-income and higher-income shoppers.
