Good morning.
As Walmart is the largest retailer in the U.S., its quarterly earnings offers some insight into consumer spending. And right now those earnings are signaling an economic warning.
For the three-month period ending Oct. 31, Walmart reported on Thursday a strong quarter with consolidated revenue of $160.8 billion, up 5.2%, compared to last year. The retailer beat Wall Street expectations of $159.13 billion. And profit was $453 million for the quarter.
Walmart U.S. comp sales were up 4.9% compared to the same time last year, and e-commerce up 24%, led by pickup and delivery. The company raised its full-year earning per share outlook to $6.40-$6.48. Its previous guidance was $6.36-$6.46.
But during the earnings call, John David Rainey, EVP and CFO at Walmart, commented that in late October, shoppers slowed purchases, in contrast to spending patterns earlier in the quarter.
So what gives?
“It's difficult to say at this point,” Rainey told me in our conversation following Walmart’s earnings call. “I think there are a couple of things to consider.” It could be partly due to unusual weather in late October, he said. For example, having winter apparel in the store, but it’s still hot outside, he explained.
“But there’s also a number of things happening in the economy, broadly, whether it be credit tightening, consumer balance sheets reverting back to pre-pandemic levels, even repayment of student loans, all of those things could be having an effect.”
Rainey continued, “November is doing pretty well right now. But that two-week period in the back half of October was off trend from everything that we had seen before. And we believe it's bigger than just our business because we're gaining share. We see certain categories where we are far outperforming versus what's happening in retail.”
Based on the findings, “there could be maybe a little more variability as we look into the fourth quarter,” he said.
On Oct. 1, the government's three-year pause on federal student loan payments ended. A new research paper from TransUnion and Boston Consulting Group finds the resumption of payments will have a “noticeable impact” on credit risk for student loans as well as other consumer credit products, like credit cards and personal loans.
"We expect 500,000 to 1.4 million consumers to become seriously delinquent on one or more of their credit products,” depending on enrollment levels in the government's income-driven repayment plan, according to the report. The researchers also anticipate that in the next 12 months, “an additional 191,000 to 600,000 credit card consumers will become seriously delinquent at least on one of their cards,” the report states.
Walmart continues to invest in advanced technologies, including supply chain automation, and the company’s starting to see the productivity benefits, Rainey said.
An example would be the automated loading of pallets on a truck at a distribution center before they are delivered to a Walmart store, Rainey explained. The new technology is efficient and helps associates spend about 80% less time doing the manual labor of unloading trucks and sorting trailers, he said.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
