WASHINGTON (Reuters) – U.S. retailer Walmart Inc (WMT.N) reported strong second quarter results and raised its earnings expectations for the year, temporarily sidestepping concerns around consumer demand in the wake of tariffs on imports from China.
FILE PHOTO: Walmart signs are displayed inside a Walmart store in Mexico City, Mexico, March 28, 2019. REUTERS/Edgard Garrido/File Photo
Walmart’s performance was helped by shoppers who spent more at its stores and websites, indicating the U.S. consumer economy has not lost steam, sending its shares up 5% in premarket trading.
The world’s largest retailer posted a 20-quarter, or five-year, streak of U.S. growth, unmatched by any other retail chain.
Consumers are responding to the changes the company is making to its business and the company is gaining market share, Chief Executive Doug McMillon said in a statement.
The retailer gets 56 percent of its revenue from food and grocery sales, which allows it to manage the pressure from tariffs better than many rivals, analysts said.
In an interview on Thursday, Chief Financial Officer Brett Biggs said Walmart has raised prices on some items due to these tariffs, but it is not passing all the cost pressure it faces to consumers.
It is managing that by negotiating with suppliers and sourcing from alternate supply bases, he said.
“We still feel good about the consumer overall,” Biggs said.
A Walmart shopping trip was 5.2% more expensive in June compared with a year earlier, according to Gordon Haskett Research Advisors, which compared prices on a basket of about 76 identical items over the past year.
U.S. President Donald Trump raised tariffs on $200 billion of Chinese imports to 25% from 10% earlier this year, a move that has begun pushing up prices of thousands of products including clothing, furniture and electronics.
Earlier this week, Trump backed off his Sept. 1 deadline for imposing 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods, to shield U.S. holiday sales.
The move offered relief to the retail industry but will do little to mitigate the impact on consumers during the holiday season. Most retailers have purchased their holiday-season merchandise, and the inventory has for the most part already arrived at U.S. ports and warehouses.
Walmart has also come under growing pressure and criticism over its policy to continue selling firearms after two mass shootings, one at its store, killed 31 people in Texas and Ohio. The retailer said its policy to sell guns had not changed and did not offer further updates on the issue.
Sales at U.S. stores open at least a year rose 2.8%, excluding fuel, in the quarter ended July 31. Analysts estimated growth of 2.07%, according to IBES data from Refinitiv.
Adjusted earnings per share increased to $1.27 per share, beating expectations of $1.22 per share.
The retailer raised its forecast for adjusted earnings-per-share to a “slight decrease to slight increase,” from a “decline by a low single-digit percentage range.” That forecast includes the effect from the acquisition of Indian e-commerce firm Flipkart.
Online sales surged 37%, in line with the previous quarter’s increase and higher than the company’s expectation of 35%. That contributed 140 basis points to U.S. comparable sales, from 100 basis points during the same quarter last year.
Walmart’s online expansion has come at a cost to profitability and losses at the U.S. e-commerce business could rise to about $1.7 billion this year from $1.4 billion in 2018, according to estimates from Morgan Stanley.
Walmart is looking to sell ModCloth, the women’s apparel site it acquired two years ago, as it looks for ways to pare losses at its online business.
In recent weeks, it has merged its Jet.com website into its broader e-commerce unit, a move that shows Walmart hopes to reach urban millennials with its main shopping site.
Total revenue was up 1.8% to $130.4 billion, beating analysts’ estimates for $130.1 billion.
Reporting by Nandita Bose in Washington; Editing by Bernadette Baum and Nick Zieminski