Wealth effect not in play at Walmart

Surging home prices and 401K balances have millions of Americans feeling better about their personal balance sheets and the state of the economy, but Walmart’s core shoppers remain under duress and that could spell trouble for second quarter sales.
A still-challenging job market, a lack of wage growth and high energy costs means Walmart’s core paycheck-to-paycheck shopper is still making hard choices in store aisles between necessities and discretionary products and small versus large pack sizes. Evidence to that effect will be presented on August 15 when Walmart releases second quarter results for the period ended July 26.

The company’s second quarter same-store sales forecast is relatively modest, at flat to up 2%, but the U.S. stores division is lapping a prior year period when comps increased 2.2%. It is also worth noting that Walmart posted a 1.6% same-store sales decline in the first quarter ended April 30. There were some valid reasons for the weakness, which were acknowledged by others as well, such as the delay in income tax checks coupled with a payroll tax increase, a cold wet spring that negatively affected seasonal sales and reduced food inflation.

Some of those factors benefited second quarter results since tax refunds and seasonal sales were pushed into the early part of the second quarter. That said, there is a growing sense that momentum early in the quarter was not sustained. That, coupled with the fact that the bulk of back-to-school sales will fall into the second quarter, have created a sense of anxiety that Walmart’s second quarter sales forecast could be in jeopardy.

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