Walmart sinks on cautious consumer outlook, late-October dip

Walmart Inc. skidded the most in more than a year as the retailer struck a concerned tone on the outlook for US shoppers after signs of weakness in the second half of October.

There was a “sharper falloff” in sales during the last two weeks of the fiscal third quarter, which ended Oct. 31, said Chief Financial Officer John David Rainey. While November is off to a good start thanks in part to promotions and holiday shopping, higher interest rates and student-loan repayments are weighing on demand.

“We are more cautious on the consumer than we were 90 days ago at this time,” Rainey said in an interview as Walmart reported financial results Thursday. “The takeaway for us is that we’re seeing strength, we’re seeing share gains versus others, but there still is pressure on the consumer.”

The October wobble underscores the uncertainty around consumer spending, a bulwark of the US economy, even as Walmart grabs more sales from many rivals. Excluding fuel, comparable sales at Walmart’s US unit rose 4.9% during the three months ending in late October. Target

Corp. and Home Depot Inc. reported declines in that metric this week, as consumers continued to pull back from discretionary purchases.

Walmart fell as much as 8.1% in New York trading, the most since July 2022. The shares had climbed 20% this year through Wednesday, the second-biggest gain on an S&P index of US consumer-staples companies.

“Results fell a bit light of very elevated expectations,” Rupesh Parikh, an analyst at Oppenheimer & Co., said in a note to clients.

Walmart slightly raised its profit forecast, saying adjusted earnings for the fiscal year ending in early 2024 will be as much as $6.48 a share. The world’s largest retailer had previously capped its profit outlook at $6.46 a share. Wall Street had been estimating $6.48.

But the forecast for a 7% to 7.5% increase in operating income was little changed, and the final results will probably come in at the lower end of that range, Rainey said. Among other pressures, Walmart faces costs in its sprawling Mexico business after a powerful hurricane in Acapulco hit 28 stores. Fewer than half have reopened.

During the third quarter, Walmart incurred unexpected US legal expenses that executives declined to elaborate on. More broadly, Chief Executive Officer Doug McMillon told Wall Street analysts that the Bentonville, Arkansas-based company “could have done a better job” at keeping a lid on costs. Walmart reported adjusted earnings of $1.53 a share, a penny higher than the average of analyst estimates compiled by Bloomberg.

In the US, Walmart’s caution points to a holiday shopping season that’s likely to have greater discounts as rivals compete to boost sales a welcome respite for shoppers but tough on retailers’ profitability. In addition, inflation is easing and prices in some key categories may be poised to deflate.