August 16, 2019

Breakingviews: Walmart proves it’s a port in gathering storm

by Breakingviews.

Retail is a challenging enough sector as it is. But Walmart seems to be able to withstand whatever is thrown at it, financially at least. The $315 billion giant, which is under pressure to alter its policy on selling guns after two recent mass shootings at its stores, is starting to look resilient enough to overcome the mounting headwinds created by President Donald Trump’s trade war.

Macy’s and other rivals blamed bad weather on recent earnings problems – and skittish markets don’t help. But Walmart on Thursday reported comparable store sales in the United States increased nearly 3% for the three months ending July, compared to the same period last year as shoppers piled up on groceries, toys and health and beauty products. E-commerce revenue rose 37% and Walmart has already surpassed its goal of next-day delivery for 75% of Americans that it had set for the end of the year.

Trump’s trade war with China has created problems, but Walmart’s preparations may have averted an ugly outcome. Earlier in the spring, America’s largest retailer warned that it would have to raise prices on some items after the president increased levies to 25% on some Chinese goods.

This time, Walmart executives warned the effects of the next round of tariffs, would have more of an impact. But Walmart is already working with suppliers to try and mitigate the damage. In fact, Chief Executive Doug McMillon felt confident enough to raise the company’s sales and earnings forecast for the year, prompting a near-6% jump in the stock price in early trading on Thursday.

That may seem overdone considering recent moves in U.S. stocks and bonds are starting to suggest a broader economic downturn looks likely. But the company has another factor in its favor. It gets more than half its revenue from groceries – and basic foodstuffs ought to be more resistant to a recession than other retail goods. It may even leave Walmart well positioned to pick up even more price-conscious consumers – and prove that the company is a port in the storm.

_____________________________________________________________________

Request a free trial of Breakingviews here

Article Topics

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.×