Walmart sticks to annual targets as fuel shock dents American spending

By Juveria Tabassum and Nicholas P. Brown

May 21 (Reuters) – Walmart stuck to its conservative annual sales and profit targets on Thursday, as rising fuel costs drive value‑seeking shoppers to its low-priced groceries and essentials.

U.S. retailers have flagged growing pressure on consumer spending this year, with sentiment falling to a record low in May and inflation posting its largest gain in three years.

Walmart, which has been largely insulated from the impact of weak spending, retained its annual net sales growth target of 3.5% to 4.5% and adjusted earnings per share of $2.75 to $2.85.

Analysts had called CEO John Furner’s first annual forecast conservative in February, expecting the company to raise them through the year.

The Iran war has also pushed up costs of some raw material such as resin and other packaging goods, further pressuring supply chains still recovering from the sweeping tariffs on imports last year.

FUEL SHOCK CRIMPS MARGINS

Higher fuel costs impacted Walmart’s operating income in the first quarter by about 250 basis points, and the company said it tried to absorb these costs in its delivery fulfillment operations to keep prices low.

Walmart’s U.S. gross profit margin grew 29 basis points, helped by growth in its membership revenue and advertising, but partly offset by higher fuel costs.

Its adjusted earnings per share for the first quarter was 66 cents, in line with estimates. Its shares fell about 2% in premarket trading on Thursday.

CAUTIOUS SECOND QUARTER

Walmart was also cautious about its second-quarter estimates, forecasting sales and profit below estimates.

“While consumers are telling us they’re feeling some pressure, sales strength has persisted and we saw one of our strongest quarters of share gains,” the company said.

It expects second-quarter net sales to increase 4% to 5%, compared with estimates of a 5.09% rise and adjusted earnings per share of 72 cents to 74 cents, versus expectations of 75 cents, according to data compiled by LSEG.

Smaller rival Target raised its annual sales forecast on the back of its nascent turnaround plan, but executives called for some caution, while grocers Kroger and Albertsons provided conservative annual forecasts.

Walmart, which topped first-quarter U.S comparable sales estimates, has been attracting more higher income shoppers who are seeking convenience and signing up for its delivery services.

Ecommerce sales jumped 26% in the first quarter and its contribution to total sales was up sharply from a year ago.

“Our results reflect our continued focus on delivering across the enterprise — better shopping experiences, a broader assortment, and faster delivery,” Furner said in a statement.

(Reporting by Juveria Tabassum in Bengaluru and Nicholas P. Brown in New York; Editing by Arun Koyyur)