Walmart says inflation was stickier than expected in latest quarter

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Walmart said prices for some of its products did not decline as much as it had anticipated during the most recent quarter, reflecting the sticky inflationary environment in the US that is prompting investors to reassess when the central bank will start cutting interest rates.

Chief executive Doug McMillon said in November that the world’s largest retailer could find itself “managing a period of deflation” in early 2024, in what may have been an encouraging sign for the broader economy given Walmart’s reputation as a consumer bellwether.

McMillon said on Tuesday that Walmart’s general merchandise category in its US operations was “there” in terms of a “deflationary position”, but in the three months to January, “the slope of the decline softened”.

General merchandise prices were lower than a year ago, he told analysts, “but not as much as the trend line would have suggested” at the end of the preceding quarter. Prices for food and consumables were “slightly higher than a year ago”, he added.

McMillon’s comments come a week after official data showed inflation in the US eased less than expected during January, prompting investors to scale back bets that the Federal Reserve would begin easing monetary policy as soon as May.

Eggs, apples and deli snacks cost less than they did 12 months ago, McMillon said, but prices for asparagus, blackberries, paper goods and cleaning supplies were up.

Having been burdened by rising prices across the economy for several years, bargain-hunting consumers — and even higher-income households — remain on the lookout for deals. Customers had “immediately responded” to Walmart’s moves to lower the price of a rotisserie chicken by $1 and “roll back” the price of French bread to $1, said chief financial officer John Rainey.

Walmart reported strong quarterly sales and revenue, buoyed by holiday season spending, but signalled a slowdown in growth over the coming year.

The Arkansas-headquartered company brought in about $172bn in consolidated net sales in the three months to January. That was up 5.6 per cent compared with the same period a year earlier, and $1bn more than analysts expected. But it projected growth of between 3 and 4 per cent over the next 12 months, below the 4.5 per cent pencilled in by Wall Street.

Fourth-quarter net income of $5.5bn was down 12.4 per cent from a year earlier, but came in at about $1bn above analysts’ forecasts.

Rainey said Walmart gained market share across “virtually every category” during its fourth quarter, driven in large part by those in households making more than $100,000 a year. The demographic accounted for two-thirds of market share gains in general merchandise.

Walmart also announced a deal to acquire television maker Vizio, a $2.3bn acquisition it hopes will help it expand its media business in the US by integrating the tech group’s ad business with the huge reach the retailer already has via its multiple sales platforms.

“Marketplace and advertising are key drivers of profitability growth . . . and this acquisition accelerates the buildout of our advertising platform into the connected TV business, which will be exciting,” said McMillon.

Walmart’s move further highlights its intent to further diversify its revenue stream beyond selling goods. The deal comes as advertising has become an important revenue stream for ecommerce giant Amazon.

Walmart generated about $3.4bn in advertising revenues in 2023, while Amazon’s ad business had sales of almost $38bn during the same period and is growing rapidly. In the third quarter of last year, the most recent available data, Amazon reported ad sales worth $12bn.

Walmart teamed up with tech group Innovid last year to run personalised ads on TVs. It has also partnered with Roku in the past in a move that allowed customers to buy Walmart items directly from their smart TVs.

Investors also parsed results from Home Depot on Tuesday for further clues on the state of the US consumer. The home improvement retailer reported another quarterly drop in its key sales measure and forecast an annual decline for the year ahead, as consumers defer spending on big-ticket items against a backdrop of elevated mortgage rates.

Shares in Walmart rose 3.2 per cent to close at a record, while those in Vizio gained 16.2 per cent. Home Depot edged up 0.1 per cent.

Additional reporting by Anna Mutoh