Walmart says inflation was stickier than expected in latest quarter

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Walmart said prices for some of its products did not decline as much as it had anticipated during the most recent quarter, reflecting the sticky inflationary environment in the US that is prompting investors to reassess when the central bank will start cutting interest rates.

Chief executive Doug McMillon said in November that the world’s largest retailer could find itself “managing a period of deflation” in early 2024, in a potentially encouraging sign for the broader economy given Walmart’s reputation as a consumer bellwether.

McMillon said on Tuesday that Walmart’s general merchandise category in its US operations was “there” in terms of a “deflationary position”, but in the three months to January, “the slope of the decline softened”.

Prices are lower than a year ago, he told analysts, “but not as much as the trendline would have suggested” at the end of the preceding quarter. Prices for food and consumables were “slightly higher than a year ago”, he added.

McMillon’s comments come a week after official data showed inflation in the US eased less than expected during January, prompting investors to scale back bets that the Federal Reserve would begin easing monetary policy as soon as May.

“Our general merchandise prices are lower than a year ago, even two years ago in some categories,” McMillon said. Prices for eggs, apples and deli snacks have fallen from 12 months ago, but the likes of asparagus, blackberries, paper goods and cleaning supplies were up.

Walmart reported strong quarterly sales and revenue, buoyed by solid holiday season spending, but signalled a slowdown in growth over the coming year.

The Arkansas-headquartered company brought in about $172bn in consolidated net sales in the three months to January. That was up 5.6 per cent over the same period a year earlier, and $1bn more than analysts expected. But it projected growth of between 3-4 per cent over the next 12 months, below the 4.5 per cent pencilled in by Wall Street.

Fourth-quarter net income of $5.5bn was down 12.4 per cent from a year earlier, but came in at about $1bn above analysts’ forecasts.

The company also announced a deal to acquire TV maker Vizio, a $2.3bn acquisition it hopes will help it grow Walmart’s advertising business.

The retailer said that the takeover would “further accelerate Walmart’s media business in the US” by integrating Vizio’s ad business with the huge reach the retailer already has via its multiple sales platforms. 

“We also believe [Vizio] enables a profitable advertising business that is rapidly scaling. Our media business, Walmart Connect, is helping brands create meaningful connections with the millions of customers who shop with us each week,” said Seth Dallaire, Walmart’s chief revenue officer.

Walmart’s move further highlights its intent to further diversify its revenue stream beyond just selling goods. The move comes as advertising has become an important revenue stream for ecommerce giant Amazon.

Walmart generated about $3bn in advertising revenues in 2023, while Amazon’s ad business had sales of nearly $38bn during the same period and is rapidly growing. In the third quarter of last year, the most recent available data, Amazon reported ad sales worth $12bn.

Shares in Walmart were up almost 6 per cent in early Wall Street trading on Tuesday, while Vizio jumped 15.7 per cent.

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