When US retailer Walmart Inc. releases its earnings on Tuesday, it is anticipated to adopt a cautious stance for 2024.

Walmart most likely had a record-breaking holiday season, but many Americans are still burdened by inflation and their high cost of living. Increased rental costs caused U.S. consumer prices to rise more than anticipated in January, alarming investors and increasing the likelihood that interest rates will remain high for longer than anticipated.

Based on LSEG forecasts, Walmart is predicted to report a 4% increase in revenue, or around $11 billion, for the quarter ending on November 1st and January 31st.

According to analysts at Cowen, Walmart—the first significant U.S. retailer to release results—saw a strong holiday selling season.

Referencing an internal poll, Cowen stated that during the quarter, customer visits to Walmart’s 5,000 U.S. locations increased by 4.5%. According to Cowen, consumers also increased their credit card spending, which increased by over 4% between November and mid-January.

Comparatively, traffic increased by just 0.3% at rival Target, which will release its results next month, while credit card spending decreased by 9%, according to the brokerage.
Additionally, analysts predict that Walmart will demonstrate increased profitability as a result of lower supply chain expenses and the decline in petrol prices since November. A growth of 8% is anticipated in net income.

Consumer spending remained robust during the most of last year, helped by a robust labour market. An excellent holiday shopping season was ushered in by consumers defying inflation.

Despite the fact that grocery prices are still significantly higher than they were before the epidemic, more consumers are choosing Walmart over its competitors in the grocery store because of its lower food pricing, according to Bank of America analysts.

With consumers focusing on groceries, health, and necessary products accounting for around 70% of sales, Walmart finds itself in a sweet spot in current inflationary economy. Even in a disinflationary economy, analysts noted, this increases its capacity to sell non-food things like clothing and furnishings because of the increased traffic it brings in.

Walmart is predicted to post sales of $645 billion for the fiscal year 2024, more than doubling its nearest rival, thanks to its dominance in the grocery business.

However, questions remain on how quickly inflation will decline this year. A number of significant Walmart suppliers are sounding apprehensive.

As consumers processed price increases, Kraft Heinz, Mondelez, Hershey, and PepsiCo noted lower volume growth in their most recent quarterly results.

The U.S. company Ahold Delhaize, which owns Stop and Shop and Food Lion stores, reported a drop in sales in the area last year, partly as a result of the termination of pandemic-related hunger relief benefits.

According to two investors, Walmart management should provide new insights into the behaviour of American consumers in the wake of inflation data. According to David Klink, senior analyst at Huntington Private Bank, which holds more than $50 million worth of Walmart stock, “Are they more resilient to price hikes than we think?”

Sizemore Capital Management’s chief investment officer, Charles Sizemore, will keep an eye on how much consumers are changing what and where they buy to cut costs. “If (Walmart) they come in and say they are seeing inflation is sticky and are finding it difficult to pass those on to customers, that would be bad for Walmart and the industry in general,” he stated. Sizemore Capital has roughly $2 million worth of shares in Walmart.

Walmart is expected to provide cautious forecasts, with Arun Sundaram, an analyst at CFRA Research, projecting a 3% increase in sales for the fiscal year that ends on January 31, 2025. This contrasts with the current growth estimates for fiscal 2024, which range from 5% to 5.5%.

Indeed, traditionally, Walmart has raised its outlook later in the year after releasing a more cautious one at the beginning.

Sizemore stated that even with Walmart’s stock’s high valuation—roughly 23 times projected earnings—he is still optimistic about the company.

“It has been a sombre retail environment, but Walmart has been doing really well,” he stated.

(Adapted from USNews.com)