Walmart, the largest retailer in the United States, on Thursday reported stronger-than-expected growth in sales and profit as it attracted more shoppers willing to open their wallets, a sign that consumer spending, the engine of the U.S. economy, remains resilient.
Walmart’s results capped a week of major retailers opening their books, including Home Depot, Target and TJX, which owns T.J. Maxx and Marshalls. Home Depot and Target reported declines in their latest quarterly sales, while TJX’s off-price retailers reported a bigger-than-expected rise in sales and the company revised its forecast for the full year higher, like Walmart.
The earnings offer a glimpse into consumers’ purchasing habits as they continue to navigate stubborn inflation and shift their spending from goods like furniture and electronics to services like travel, dining out and going to the movies. Rising prices have brought new shoppers to Walmart, in the form of higher earners attracted by cheaper groceries and other essentials at the big-box stores. By drawing in higher-income shoppers — a trend that Walmart executives have called out in the past few quarters — the retailer had an “opportunity to drive conversion in more discretionary categories,” Doug McMillon, Walmart’s chief executive, said.
“It isn’t as surprising to us that the consumer is as healthy as they continue to be,” said David Silverman, a retail analyst at Fitch Ratings. “I think that what we’ve been surprised about is that the consumer is still spending on goods while they have clearly been spending more and more on services, particularly this summer.”
Walmart’s comparable sales rose more than 6 percent in the second quarter from a year earlier, comfortably beating Wall Street’s expectations. Grocery sales were particularly strong, the company said, while spending on general merchandise fell slightly.
Walmart expects to continue drawing in more shoppers, even as economic headwinds like inflation and the resumption of student loan payments squeeze household budgets. Walmart reported a rise in revenue of nearly 6 percent in the second quarter; it expects sales for the full year to grow between 4 and 4.5 percent.
“We see families that are discerning about what they’re spending on,” Mr. McMillon said on a call with analysts. “They’re setting priorities and spending on the things they care most about.”
Executives noted that shoppers were buying more private-label brands, groceries and meal options for eating at home.
Foot traffic and the amount spent per trip rose last quarter at Walmart’s U.S. stores. The company also reported a 24 percent rise in e-commerce sales. It raised its full-year growth forecasts for the second consecutive quarter.
Executives at a variety of retailers have described a situation in which consumers are wary but still willing to spend.
“A more cautious and value-driven consumer” has affected sales, Rosalind Brewer, the chief executive of Walgreens Boots Alliance, told analysts recently. Customers were “feeling the strain” of high inflation and interest rates, she said, as well as general economic uncertainty and the end of many pandemic stimulus measures. “They are pulling back on discretionary and seasonal spend, and responding strongly to promotional activity,” she said.
That said, consumer spending has largely held up, propelled by a resilient labor market and rising wages. Retail sales in July rose 3.2 percent from a year earlier, according to data released on Tuesday, surpassing economists’ expectations. In July, many retailers ran promotions around Amazon Prime Day, which has become a significant sales event during the summer.
“Fears of a recession, or at least a severe recession, have largely subsided, and the consumer is generally healthy,” Ted Decker, Home Depot’s chief executive officer, said Tuesday on an earnings call.
But retail industry watchers have noted that the restart of student loan repayments in October could weigh on consumer spending.
“The upcoming resumption of student loan repayments will put additional pressure on the already-strained budgets of tens of millions of households,” Michael Fiddelke, Target’s chief financial officer, told analysts on Wednesday. “Against this backdrop, we remain cautious in our planning.”
Once back-to-school spending ends, retailers and analysts will look ahead to the crucial holiday shopping season to gauge the health of American consumers. Shoppers will start to see those seasonal products, like lanterns, ornaments and artificial Christmas trees, roll out in a few weeks.
“Typically when back-to-school is strong, it bodes well for what happens with Halloween and Christmas,” Mr. McMillon, the Walmart chief, said.