Walmart aims to lower food costs to entice customers to buy other products
Walmart offered cautious comments on consumer spending
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Walmart CFO John Rainey said Wednesday that the company is working to lower food prices to ease pressure on consumers' wallets so that they can spend more on other products.
"As we enter the holiday season, we're working hard to lower grocery prices to ease the pressure for customers, giving them more capacity for general merchandise," Rainey told analysts on an earnings call Thursday.
Walmart believes that if food prices come down, more customers will be able to allocate a greater share of their budget to general merchandise, which is not only a key category for gift giving, but one that offers higher margins.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| WMT | WALMART INC. | 92.50 | +0.62 | +0.67% |
WALMART'S CAUTION ON CONSUMER SPENDING AHEAD OF HOLIDAYS SENDS SHARES LOWER
In the third quarter, general merchandise sales declined, compared with the same period a year ago. However, the company said that it was able to gain share across categories as costs for general merchandise fell by low- to mid-single digits versus last year.
A Walmart location on 2844 North Broadway Street ahead of permanently closing in Chicago, Illinois, on Wednesday, April 12, 2023. (Christopher Dilts/Bloomberg via Getty Images / Getty Images)
CEO Doug McMillon noted on the call that food categories continue to be a concern for the company and that product costs overall are up versus last year.
"They remain up even more on a two-year stack, which is putting pressure on our customers," McMillon said.
He noted that beef prices are high, but that the company is seeing relief with dairy, eggs, chicken and seafood.
For example, in the latest consumer price index for October, prices for frozen beef steaks were up 10.6%.
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"The pockets of disinflation we are seeing are helping, but we'd like to see more, faster, especially in the dry grocery and consumables categories," McMillon added.
Customers shop at a grocery store in the Brooklyn borough of New York. (Michael Nagle/Xinhua via Getty Images / Getty Images)
The company said it isn't immune to the economic conditions, with Rainey noting customers are "showing ongoing discretion in seeking value to manage within their household budget."
He said that given the high costs of necessary items, the company has experienced a "higher degree of variability in weekly performance in between holiday events in the U.S., including seeing a softening in the back half of October that was off-trend to the rest of the quarter."
Walmart shares have gained 10% this year, trailing the S&P 500's 17% advance.
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On Thursday the retailer upped its annual sales and profit forecast for the fourth quarter.
The Arkansas-based company now expects fiscal 2024 earnings per share of between $6.40 and $6.48, up from $6.36 to $6.46. It expects sales at stores open for at least a year to increase to between 5% and 5.5%, up from its previously estimated range between 4% and 4.5%.