Walmart boosts profit projection as steep discounts help clear out excess inventory - while Home Depot posts record sales despite slowing housing market
- Strong earnings from Walmart and Home Depot boosted retail sector on Tuesday
- Walmart raised its annual profit forecast, projecting smaller declines for the year
- Retail giant says steep discounts have helped clear out a backlog of inventory
- High-income shoppers are also increasingly turning to Walmart amid inflation
- Walmart also announced new deal to give Paramount+ to Walmart+ subscribers
- Meanwhile, Home Depot posted record sales and profits for the quarter
- Though home sales have slowed, the chain still saw strong demand
The US retail sector got a boost on Tuesday as Walmart and Home Depot both posted financial results that were better than Wall Street analysts had expected.
Walmart boosted its annual profit forecast, partly reversing a hefty cut less than a month ago, as discounts to clear excess merchandise and lower fuel prices helped it beat expectations for quarterly sales.
The company also said that, even as inflation cuts into discretionary spending, it has seen higher grocery sales to middle-income and wealthy customers who are increasingly seeking out bargains.
CFO John David Rainey told CNBC that about 75 percent of of Walmart's market share gains in food came from customers with annual household incomes of $100,000 or more.
As well, Home Depot surpassed estimates for quarterly sales after demand from builders and higher prices helped the biggest U.S. home-improvement chain cushion the hit from dwindling store visits as the housing market slows.
![Walmart boosted its annual profit forecast on Tuesday. Walmart relies more on groceries and other essentials than Target, helping it weather the shift in consumer spending](https://i.dailymail.co.uk/1s/2022/08/16/16/61435165-11116607-image-a-8_1660662225979.jpg)
Walmart boosted its annual profit forecast, partly reversing a hefty cut less than a month ago, as discounts to clear excess merchandise and lower fuel prices helped it beat expectations
![Walmart stock jumped 5.8 percent in morning trading on Tuesday](https://i.dailymail.co.uk/1s/2022/08/16/16/61435133-11116607-image-a-9_1660662230404.jpg)
Walmart stock jumped 5.8 percent in morning trading on Tuesday
Walmart stock, which had fallen over 8 percent this year, jumped 5.8 percent in morning trading, lifting the Dow into positive territory while the other major indexes posted small losses.
Shares of rivals Target, Costco and Best Buy also climbed on the news, which suggested that consumer spending remains strong in spite of painful inflation.
On Monday, Walmart also announced that it had struck a deal with Paramount Global to offer the Paramount+ streaming service to the subscribers of its membership program in a push to better compete with Amazon.
Members of Walmart+ will get access to Paramount's 'essential' plan, which costs $4.99 per month and includes commercials. Paramount also offers a $9.99-per-month service without ads.
Walmart+ membership costs $12.95 per month or $98 per year and includes free shipping on orders and discounts on fuel as well as a free six-month subscription to Spotify's premium music service.
In Tuesday's earnings report, Walmart said it now expected fiscal 2023 adjusted earnings per share to fall 9 to 11 percent from last year, less than the 11 to 13 percent decline it projected a month ago, sending its shares plunging.
![On Monday, Walmart also announced that it had struck a deal with Paramount Global to offer the Paramount+ streaming service to the subscribers of its membership program](https://i.dailymail.co.uk/1s/2022/08/16/16/61435173-11116607-image-a-10_1660662238493.jpg)
On Monday, Walmart also announced that it had struck a deal with Paramount Global to offer the Paramount+ streaming service to the subscribers of its membership program
Walmart ended the first quarter with $61 billion worth of inventory, a sharp increase from prior levels, as consumers pulled back on discretionary spending due to soaring inflation.
A host of other retailers including Target Corp and Best Buy Co Inc have also issued profit warnings in recent weeks as they struggle with excess merchandise.
Walmart slashed prices on items such as apparel to try to reduce excess inventory, and reported inventories of $59.92 billion at the end of the second quarter -- still 25 percent above last year's levels.
'I think it's going to take another quarter, maybe get into the fourth quarter a little bit, to get back to where we want to be from an overall inventory perspective,' Walmart's Chief Financial Officer John David Rainey said.
Rainey, who joined Walmart in May, added consumers were continuing their purchasing patterns of buying more low-margin food and consumables over general merchandise, despite an easing in gas food prices.
They are trading down and allocating more spending to private-label products, he said.
'Instead of buying maybe deli meats or beef, they're trading down to things like canned tuna, chicken and, even, beans. We're seeing the same thing in the quantity, where they're trading down for smaller pack sizes that are more affordable. So instead of buying 12 items to buy six items in a pack,' Rainey said.
Home, electronics and apparel are still 'problematic' categories, Rainey said.
![](https://i.dailymail.co.uk/1s/2022/08/11/20/61255749-11103477-image-a-11_1660245183272.jpg)
Back-to-school shopping gave Walmart's sale a boost at the end of July, but many parents opted for school supplies instead of clothing. Rainey said he expected back-to-school apparel shopping to pick up in the coming weeks.
Since the last round of quarterly results, the prices consumers pay for goods and services have shown signs of easing. The consumer price index rose 8.5 percent in July, less than in the previous month, due largely to a 17 percent drop in gasoline prices.
This helped to drive a 6.5 percent rise in sales at Walmart's U.S. stores that have been open for at least a year, beating its prior forecast for a 6 percent gain.
Total revenue rose 8.4 percent to $152.86 billion in the second quarter, beating analysts' average expectation of $150.81 billion, according to IBES data from Refinitiv.
However, discounts on discretionary products, slowing demand for high-margin items such as appliances, electronics and clothes, and rising labor costs led to a 6.8 percent fall in the company's quarterly operating income to $6.85 billion.
'Walmart maintained its outlook for the second-half of the year - an indication that, even with lower gas prices, consumers are still looking at buying less and cheaper on their weekly shopping trips, Jefferies analyst Stephanie Wissink said.
Home Depot posts record sales and profits, beating expectations
Customers who bought homes during last year's housing boom are still driving demand for home-improvement chains, although the explosive growth seen during the peak of the pandemic has started to cool off.
Home Depot recorded comparable sales growth of 5.8 percent in the second quarter, compared with an average of 14 percent in the corresponding periods of the past two years.
Sales of homes in the United States has slowed in recent months as rising mortgage rates and house prices reduce affordability for consumers already struggling with more expensive everyday essentials such as food and gas.
![Home Depot recorded comparable sales growth of 5.8 percent in the second quarter](https://i.dailymail.co.uk/1s/2022/08/16/16/61435141-11116607-image-a-11_1660662389088.jpg)
Home Depot recorded comparable sales growth of 5.8 percent in the second quarter
![Home Depot stock rose on Tuesday morning](https://i.dailymail.co.uk/1s/2022/08/16/16/61435131-11116607-image-a-12_1660662396035.jpg)
Home Depot stock rose on Tuesday morning
The reopening of offices has also dampened demand from customers who embarked on do-it-yourself projects during lockdowns.
'Investors continue to worry that we are on the cusp of a sharp slowdown in home improvement activity,' Truist Securities analyst Scot Ciccarelli wrote in a note.
Despite Home Depot's record sales and earnings in the second quarter, the company recorded a 3% drop in customer transactions and left its full-year forecasts unchanged.
Home Depot's comparable sales was still above analysts' expectations for 4.9% growth, according to IBES data from Refinitiv.
Net earnings increased 7.6% to $5.17 billion, or $5.05 per share, compared with expectations of $4.94 per share, as it benefited from demand from professionals including remodelers, handymen and plumbers.
That segment brings in more of Home Depot's sales than for biggest rival Lowe's Cos Inc, which will report quarterly results on Wednesday.
Most watched News videos
- Moment French police ram speedboat into overcrowded migrant vessel
- Harry and Meghan enjoy VERY steamy salsa dance before quick kiss
- Meghan and Harry greet audience before her talk in Colombia
- Moment cops find LuluLemon shoplifter hiding in Tesla trunk
- Two giant waterspouts are spotted over the sea in Italy's Fregene
- Fisherman who spotted superyacht wreckage reveals what he found
- Russian troops beaten and taped to trees for being 'drunk'
- King Charles receives formal welcome as he arrives at Balmoral
- 'Britain's Bill Gates' feared dead as 180ft superyacht sinks
- Ukrainian paratroopers take out Russian defences in Kursk village
- Superyacht disaster survivors seen as firefighters continue search
- Brazen car thieves steal car as owner fills up at a petrol station