Walmart lifts profit forecast on strong US sales

Walmart lifted its full-year profit forecast Thursday after better-than-expected results on solid US consumer spending, reflecting confidence that trade frictions will not significantly dent earnings.
Amid rising fears of a US recession, the world’s biggest retailer said the American consumer as in “relatively good shape,” as it posted another quarter of growth in US comparable sales, a closely-watched benchmark, jolting shares higher.
Walmart said full-year earnings per share will range from a slight decrease to a slight increase over last year, an improvement on the original outlook that called for a decline.
“Customers are responding to the improvements we’re making, the productivity loop is working, and we’re gaining market share,” said Chief Executive Doug McMillon.
Net income was $3.6 billion, up from an $861 million loss in the year-ago period, when one-time costs related to its Brazil business dented results.
Revenues rose 1.8 per cent to $130.4 billion.
The results caught President Donald Trump’s eye, and he tweeted that the retail chain is a “great indicator to how the US is doing.”
Walmart officials reiterated their firm support for free trade, after warning in June that proposed tariffs on a broad swathe of consumer goods imported from China are “likely to hit low-income American families the hardest.”
Battling Amazon
Walmart has been dueling with Amazon over faster home-delivery programs and in June unveiled a new venture to stock goods in customers’ refrigerators in three American cities.
McMillon said Walmart had boosted its competitive position in several categories, including food, health and wellness and toys, attributing the gains to heavy investments in e-commerce and smartphone applications that have strengthened ties to American households.
Analysts view the investments as necessary, but they have hit the company’s profit margins in the near term.
The retail giant has avoided specifics on how it is responding to tariffs on individual items.
The company’s projections incorporate the latest US tariff plans, including Tuesday’s announcement that Trump is delaying imposition of new duties on more than half the products targeted for the next round, to avoid hitting consumers during the holiday shopping season.
That reprieve spared Chinese-made cellphones and many toys, but still hit many consumer categories including apparel and televisions.
The fourth round of tariffs, set to begin September 1, “affects a larger part of our assortment than the prior tariffs,” Chief Financial Officer Brett Biggs said in a statement.
He added that the retailer “has been able to thoughtfully manage pricing and margins with both our customers and shareholders in mind.”
Mitigating tariff hit
Biggs said the company works with suppliers and tweaks its products in response to tariffs.
“You look at other places to source—some of that can be done, some of it can’t,” Biggs told reporters on a conference call.
Analyst Neil Saunders of GlobalData Retail said the results show “Walmart will be a retail winner, even if external factors start to deteriorate.”
But Saunders cautioned that the retail giant still needs to boost the profitability of its e-commerce business, adding that results should improve as customers become more familiar with the offerings and boost their purchases.
Gun control advocates have called on the chain to end firearms sales after a gunman who posted an anti-Hispanic manifesto killed 22 people in an attack at a Walmart in El Paso, Texas.
McMillon defended the company’s decision to keep selling some guns as a “common sense” approach, noting that the chain had halted sales of military-style weapons in 2015 and raised the age limit to purchase a firearm to 21 in 2018 after an attack on a Florida school.
Walmart’s share price jumped rose 6.1 per cent to $112.69.