What’s Going On Here?As Americans stockpiled anything and everything they could to outlast coronavirus, Walmart's quarterly results brought home a couple of essentials of their own on Tuesday: soaring sales and better-than-expected profits. What Does This Mean?As shoppers prepped for lockdown life with toilet paper, hand sanitizer, and, um, hair clippers, sales at Walmart’s US stores that have been open for at least a year jumped 10% – their biggest gain in almost two decades (tweet this). That helped the retail giant report better-than-expected profit and revenue, and its shares initially climb 3%.
The gain was particularly impressive given Walmart’s stock had already rallied 7% this year, even as the wider US market dropped 9%. There were caveats, mind you: Walmart’s already-meager profit margins were squeezed by the focus on less profitable everyday essentials, and its costs – including the 200,000-odd staff hired to keep stores clean and shelves full – rose too. And with so many piles now positively stocked, the retailer said there’s just too much uncertainty to make an annual forecast. Why Should I Care?For markets: Playing catch-up.
Ecommerce in the world’s biggest economy has long lagged behind its European cousins, but shelter-in-place orders and non-essential store shutdowns have given the US a boost. Walmart’s online sales grew by 74% in the quarter, though it's still a distant second in the race for Americans’ internet dollars overall: the retailer only took 7% of the market last year, compared with Amazon’s massive 44% share.
The bigger picture: Don’t get too excited.
It might seem like US consumers are spending freely, but the real picture is bleaker. While staples like food and soap are more in demand than ever, higher-margin discretionary items – the things people want but don’t need – aren’t. In fact, a report on Monday predicted US retail sales may drop more than 6% in 2020 – three times further than at the peak of the last crisis in 2009. No need to tell Home Depot or Kohl’s: they both issued disappointing results on Tuesday. | 