Walmart executives do not believe that a full-blown recession is imminent, despite the company’s continued caution about the financial stability of its customers.
Walmart Chief Financial Officer John David Rainey told CNBC that the business decided against raising forecasts for the second half of the year due to unpredictabilities that could upset customer sentiment, such as the 2024 election and upheaval in the Middle East.
However, he claimed that for the first half of the year, consumer activity had been consistent. Later on Thursday, the Commerce Department revealed that retail sales across the country had surprisingly increased in July, echoing the view expressed earlier.
“Although a recession is not what we anticipate, in this context it is appropriate and reasonable to be a little cautious,” Rainey stated on Thursday, the same day the company reported its most recent quarterly results.
For months, experts and business executives have been debating whether the United States is on the verge of a recession, which is often characterized as two consecutive quarters of negative growth. The strongest indicator of economic output, the United States gross domestic product, has continued to climb as a result of a robust economic rebound following the pandemic. However, attempts to lower inflation through higher interest rates have raised some worries that the economy may experience a downturn.
The question of whether American consumers would continue to spend has been a major emphasis in the debate about whether a recession is imminent. Walmart reported that more traffic to both its physical shops and Walmart.com helped to boost sales in the most recent quarter by about 5%. Rainey stated that although customers are still searching for deals, there hasn’t been a noticeable decrease in their behavior thus far, with the back-to-school season “off to a pretty good start.”
Importantly, Rainey stated, “We observe no further deterioration in consumer health among our clients and members. They continue to be selective, discriminating, and value-seekers, emphasizing necessities over frivolous stuff.”
Low inflation is a major factor in maintaining stability. While rising costs are still a hot topic on the campaign trail, with both presidential candidates emphasizing their plans to combat the cost of necessities, Rainey said Walmart’s price growth was constant from year to year.
Thus, rather than increased prices, sales growth was driven by selling more units: According to Rainey, Walmart has been pressuring its vendors to lower their pricing. During the quarter, the business witnessed 7,200 “rollbacks,” or temporary price reductions on merchandise, with a notable 35% rise in the number of rollbacks on food.
According to Rainey, Walmart is probably benefiting from consumers’ search for less expensive fast food options. This industry has suffered a decline as consumers have become more resistant to price rises. He cited data on inflation that was released this week, which indicated that the surge in supermarket prices has practically leveled off.
“It makes sense that consumers are cooking more meals at home instead of going out to eat,” he stated.