“The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families we serve”
That’s Walmart CEO Doug McMillon, who noted during the retailer’s Thursday earnings call that higher prices for groceries and other basics over the past year helped pad the retail chains’ sales and profits — but at the expense of its consumers. And the company’s chief executive sounded the alarm about the possible impact on demand on Thursday, saying: “We all need those prices to come down.”
“The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families we serve,” McMillon said.
“This stubborn inflation in dry grocery and consumables is one of the key factors creating uncertainty for us in the back half of the year because of the cumulative impact on discretionary spending in other categories, specifically, general merchandise,” he continued.
McMillon said that “high-single digit to low-double digit cost inflation” had endured for things like dry groceries and consumables like paper-based products. He added: “We all need those prices to come down.”
McMillon said that the chain had been attracting younger and wealthier shoppers seeking breathing room from the price squeeze. He said costs for general merchandise — broadly, products that aren’t groceries — were lower than a year ago, but still higher than two years ago overall.
Russia’s invasion of Ukraine last year, an avian flu outbreak and snarls in the supply chain initially pushed prices higher for things like grains and eggs — costs that flowed into the higher price consumers paid for products at stores as businesses tried to cover their own costs.
But commodity costs have shown signs of easing, and more economists have focused on larger companies’ efforts to guard profit margins as a possible driver of inflation. The higher prices have hit the lower-income population harder. And as expanded pandemic-era benefits end, more people have said they were eating less or spending less to cover expenses for food.
Walmart Chief Financial Officer John David Rainey said during the call that in the first quarter, the company saw more shopper demand shift from general merchandise to groceries and health and wellness products than in all of last year. And he said shoppers also felt the pressure of lower tax refunds and reduced government assistance.
Walmart
WMT,
on Thursday reported first-quarter results that topped estimates, and the chain raised its full-year outlook. Its expectations for the second quarter were below Wall Street’s expectations. Shares rose 1% on Thursday.
Analysts generally reacted favorably to the results. D.A. Davidson analysts said Walmart “remains well positioned to take share as the consumer becomes more cautious.”
Still, McMillon noted that customers were entering into a stretch of higher prices, one way or another, that has covered three years.
“I think the persistent inflation in dry grocery and consumables is the biggest issue when you think about what we’re up against and what we’ll lap,” McMillon said on the call. “We started to see inflation occur in the back half of 2021. It accelerated in the beginning of 2022 much faster than what we expected.”
“Since then, you’ve seen general merchandise start to come back down, but dry grocery and consumables have held. And so as a customer, particularly if it’s a customer living paycheck to paycheck, they now have a two-year stack that’s a problem and eventually becomes a three-year stack that’s a problem.”
Shares of Walmart are up 23.6% over the past 12 months. By comparison, the S&P 500 Index
SPX,
has risen 6.3% over that period.
