Despite increasing its sales and profit projections for the year, Walmart, the country’s largest retailer, has stated that American shoppers are becoming more frugal with their spending as the holiday season approaches.

The company’s stock dropped 7.7% on Thursday as management revealed that sales over the previous two months have been “somewhat uneven” due to rising interest rates and declining household savings.

Walmart’s increased emphasis on groceries, which makes up more than half of its inventory, has served as a safeguard against the general decline in discretionary spending.

John David Rainey, chief financial officer of Walmart, told Reuters that the company observed a slowdown in consumer spending in the second part of October, followed by a spike in sales of home goods and clothing that had been out of style for the majority of the year in early November.

“This gives us reason to think slightly more cautiously about the consumer versus 90 days ago,” Rainey said on the conference call.

In line with remarks made by Target CEO Brian Cornell on Wednesday, he stated that although store visits increased by 3.5% in the third quarter, consumers are “still very choiceful and using discretion” and are waiting for sales events like Black Friday and Cyber Monday.

About 70% of the US economy is derived from consumer spending, and in October, core retail sales in the US increased by just 0.2% as consumer spending slowed as a result of rising borrowing costs and the aftereffects of inflation. The inflation of wholesale food has begun to decrease, suggesting that consumers may get some respite in the upcoming months.

Since March 2022, the U.S. Federal Reserve has increased short-term loan rates by more than 5 percentage points, which has resulted in higher rates for consumer lending and mortgages.

Retailers have issued warnings that the holiday season would not be as strong as it has been in previous years. Retailers Children’s Place and Bath & Body Works, in addition to Walmart, also released conflicting quarterly numbers on Thursday. Macy’s M.N. achieved good outcomes.

“With this type of volatility, we think it does make sense for Walmart to be slightly more cautious on the consumer heading into the holiday season, ” D.A. Davidson analyst Michael Baker said in a note.

However, the prediction positions Walmart for “another beat,” according to Art Hogan, chief market strategist at B Riley Wealth, even though it fell short of the midpoint of Wall Street projections.

Walmart has attracted more high-income customers searching for less expensive options to stretch their budgets in addition to low-income shoppers by using its size and scale to keep costs low despite inflation.

While the cost of general retail items like clothing and home goods has decreased by three to six percent, Rainey stated that the cost of food and consumables has been “more in check” compared to the previous year.

Walmart will be able to lower prices for the holiday season due to declining general goods pricing, officials stated on the conference call.

Following rival Target’s results, which predicted fourth-quarter earnings above projections, Walmart shares had reached an all-time high of $169.91 on Wednesday.

Walmart’s stock has increased in value by almost 20% so far this year compared to its competitors.

Walmart raised its previous estimate of $6.36 to $6.46 for fiscal 2024 earnings per share to between $6.40 and $6.48.

Comparable sales are expected to climb by 5% to 5.5% for the entire year, as opposed to the previously projected increase of 4% to 4.5%.

Exceeding predictions of 3.35%, comparable sales—that is, sales at Walmart’s U.S. stores open for at least a year—rose 4.9% as of October 31, excluding gasoline. Web sales increased by 15%.

In the third quarter, the business reported an adjusted profit per share of $1.53. The average expectation of analysts was $1.52 per share.

(Adapted from Reuters.com)