The sentiment in the U.S. stock market was quite negative yesterday after Walmart (NYSE: WMT) trimmed its forecast for quarterly and annual profits on Monday, stating that consumers have been changing their shopping habits due to very high inflation.
The company said it now expects adjusted profits per share to fall by 8 to 9 percent for the second quarter and 11 to 13 percent for the full year. In comparison, Walmart’s initial projection had them at a 1% decline for annual profits and flat to slightly higher for the second quarter.
A 40-year peak in US inflation is causing Americans to spend more money on the things they need, like food and consumer products, rather than on things they want, including clothing, home appliances, and furniture, Walmart said.
Given the fact that general merchandise is more profitable than necessities, this shift is hurting big retailers like Walmart, Target, and Amazon.
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Walmart CEO Doug McMillon said in a statement.
McMillion also predicts that consumers will start to cut back on their purchases of general merchandise in the second part of the year, sending a red flag for retailers before the holiday shopping season. However, by focusing on good value, Walmart can increase its market share and attract more shoppers during the inflationary period, McMillon added.
The corporation wants to expand its membership service, Walmart+, but if Americans look for costs to cut, it may be harder to convince them. Moreover, Walmart recently introduced an increasing variety of clothes and home furnishings brands, which may now end up on the discount rack.
Walmart shares closed yesterday’s session 7.6% in the red.
Coca-Cola Beats
The Coca-Cola Company stock gained following the soft drink manufacturer’s excellent Q2 earnings and an increase in its full-year projection.
KO reported adjusted earnings per share (EPS) of $0.70, above the consensus estimates of $0.67 per share. Adjusted revenue stands at $11.3 billion, topping the consensus estimate of $10.56 billion, while its organic revenue surged by +16%, almost doubling the analysts’ expectations of +8.19%.
“Our results this quarter reflect the agility of our business, the strength of our streamlined portfolio of brands, and the actions we’ve taken to execute for growth in the face of challenges in the operating and macroeconomic environment,” Chairman and CEO of The Coca-Cola Company, James Quincey, said.
The report was dubbed “another absolute blockbuster” by Bernstein.
“Much like Armand “Mondo” Duplantis, who continues to smash pole vault world records, Coke has flown well clear of this bar today. This is another absolute blockbuster of a quarter, with +16% organic revenue growth despite a 4%pt headwind from the timing of shipments, making Pepsi’s outstanding Q2 numbers look somewhat pedestrian,” Bernstein analysts told clients.
Following the positive second-quarter results, KO increased its organic sales growth projection of +7% to +8% for the entire year to +12% to +13%. Analysts anticipated 10.3 percent growth. Coca-Cola Company’s EPS projection also saw a 5-6% increase.
The company, however, expects a $0.03 impact on comparable EPS and a 1% to 2% impact on annual net revenues and operating income following its decision to halt operations in Russia.
Summary
Although Walmart’s guide down shaped the sentiment in the stock market yesterday, Coca-Cola’s “blockbuster” Q2 report yielded optimism that the state of the U.S. consumer is not as bad as initially feared.
