New York
CNN
—
Americans are cutting back — from Disney parks to Big Macs to Starbucks coffee. But they shop at Walmart.
Walmart’s U.S. sales at stores open at least a year rose 4.2% last quarter and its operating income rose 8.5% in the quarter. Walmart’s US digital sales are booming: they grew 22%.
The company raised its sales and profit guidance for the year, expecting its strong growth to continue. Shares of Walmart ( WMT ) rose 7% during premarket trading Thursday.
Walmart is America’s largest retailer and a gauge of consumer sentiment. The company reaches a wide range of consumers, and its business is stable in most economic conditions.
But after years of high prices and interest rates and now a sluggish job market, buyers are looking for deals. Even though inflation has fallen to its lowest level in three years, Americans are still paying more than they used to for groceries, housing and other goods.
This has made Walmart sweet.
As customers scoff at $6 iced coffees at Starbucks, $15 Big Mac meals at McDonald’s, and other items, they buy groceries, household items, and other items at Walmart because they feel they’re getting good value for their money.
Grocery accounts for more than half of Walmart’s sales, and Walmart has benefited from its pricing advantage — according to analyst comparisons, Walmart’s prices are 25% lower than traditional supermarkets.
Although low- and middle-income shoppers have traditionally made up the core of Walmart’s customer base, Walmart has recently grown and gained market share earning more than $100,000 a year.
Walmart said it continued to gain market share with higher-income households last quarter.
“The only place anyone shops now is Amazon, Walmart and Costco,” said Michael Baker, an analyst at DA Davidson. “Walmart does a great job of focusing on value. Value is paramount. Structurally, they’re well positioned.
The company has used its giant size and profits from high-margin businesses like advertising to drive down prices. Amazon has invested billions of dollars in recent years in remodeling stores and building a strong online business to compete with the company.
“Our new businesses like marketing, advertising and membership also contribute, diversifying our profitability and strengthening the resilience of our business model,” Walmart CEO Doug McMillan said in a statement.
On Thursday, Walmart’s stock was up 29% this year, outperforming the S&P 500. Shares of Target ( TGT ) are down 5% and Home Depot ( HD ) is up 3% this year.
Home Depot executives said in an earnings call Tuesday that consumers are healthy, but they are taking on fewer major home renovation projects. This led to sluggish sales of building materials, lumber and construction-related equipment.
“Higher interest rates and greater macro-economic uncertainty depressed consumer demand more broadly, resulting in weaker spending across home improvement projects,” Ted Decker, CEO of Home Depot, said in a statement.
