The evidence is mounting every day, folks. The American consumer is stressed.
A typical example: McDonald’s Corporation (MCD) comes under pressure.
The company announced its first quarterly decline since 2020 in its earnings report on Monday, July 29. Specifically, McDonald’s store sales fell 1% in the second quarter.
This is not a big surprise, because the French fries supplier, Lamb Weston Holdings, Inc. (LW), also reported disappointing restaurant and consumer sales. However, there is also evidence that some of this decline in sales may be due to deflation.
The CEO of McDonald’s said that the $5 menu offer was a great success and should be extended to boost sales. In addition, Burger King and KFC have also introduced $5 menu options. In addition Target Corp. (TGT), Walmart, Inc. (WMT) And Best Buy Co. Inc. (BBY) have announced price reductions on selected items.
Additionally, Diego plc (DEO), an alcoholic beverage maker, warned that consumers are facing an “extraordinary environment” and announced the first decline in sales since 2020.
In other words, there are signs of consumer desperation everywhere, especially among the bottom 20 percent of consumers who are battling inflation and trying to make ends meet.
That’s why all eyes were on the US retail sales report for July yesterday morning. Wall Street was eager to get the latest look at how consumers are spending their money and interpret what it might mean for the wider economy.
Major retailers have also started announcing their latest results, with the latest example being Walmart, which announced its latest quarterly results yesterday.
Given that Walmart is the largest retailer in America and Amazon.com, Inc.‘S (Amazon) has almost doubled its sales, it is an important indicator of consumer sentiment.
So, in today’s Market 360Let’s take a look at the latest retail sales report and review Walmart’s most recent quarterly earnings. Then I’ll share some key takeaways and discuss whether Walmart is a good buy after its earnings.
The July US retail sales report
Retail sales rose 1% in July, beating economists’ forecasts for a 0.3% increase. Excluding auto sales, retail sales rose 0.4%, also beating forecasts for a 0.1% increase. In addition, retail sales were revised to a 0.2% decline in June after initially being reported as unchanged.
To delve deeper into the details…
- Spending in bars and restaurants increased by 5.3%.
- Spending on clothing and accessories increased by 2.6%.
- Electronics and household appliance stores recorded growth of 1.6%.
- Sales in non-stationary retail increased by 0.3%
I would also like to point out that if we look at the entire retail sales report, 11 of the 14 categories we examined saw an increase in sales, so consumers are still spending money, but they are more likely to bargain hunt and resort to cheaper substitutes.
We can see this, for example, at Walmart.
Walmart’s revenue at a glance
Walmart announced its second-quarter earnings before the market opened on Thursday, August 15. In short, the company reported solid results.
Earnings were $0.67 per share, beating expectations of $0.65 per share by 3.1%. Revenue rose 4.8% year over year to $169.3 billion, beating estimates of $168.53 billion.
Walmart’s e-commerce sales grew 22% in the U.S. and 18% internationally. It is also important to note that the company’s global advertising business grew 26% in the U.S., including 30% for Walmart Connect
Sam’s Club, the Walmart-operated wholesale chain, reported a 4.7% increase in overall net sales in fuel. This strong in-store sales was driven by grocery and health and wellness.
In the company’s earnings release, President and CEO Doug McMillon stated:
Every part of our business is growing – store and club sales are increasing, e-commerce is growing as we build in pickup, and delivery is growing even faster as our speed increases. Our new businesses like marketplace, advertising and membership are also contributing, diversifying our profits and building the resilience of our business model.
And as for the health of the average consumer, McMillion said, “We are not seeing a weaker consumer overall.”
Walmart also raised its guidance for the third quarter and fiscal year 2025. For the third quarter, Walmart now expects net sales to increase 3.25% to 4.25%, while operating income is expected to increase 3.0% to 4.5%. For the full year 2025, net sales are expected to increase 3.75% to 4.75%, while adjusted operating income is expected to increase 6.5% to 8.0%.
Is Walmart a smart buy?
What we learned from yesterday’s retail sales report is that consumers are still spending money. But the fact is that they are now increasingly moving to retailers like Walmart, and that is evident in this latest earnings report. Investors cheered Walmart’s report, and the stock closed 6.6% higher on Thursday. This also helped push the overall market higher.
Should you consider acquiring Walmart after its earnings?
According to my portfolio grader, the simple answer is yes. As you can see below, the stock has an A rating, making it a “Strong Buy.” It also gets an A rating for its quantitative score and a B rating for its fundamental score. This tells us that the stock continues to be supported by both institutional buying pressure and the fundamentals remain solid.
Even though the American consumer is under stress, Walmart is making all the right moves. In fact, Walmart is a recession-resistant stock because its sales and earnings are less affected by economic turmoil.
Although I do not personally recommend the company to my subscribers, Growth investor Portfolio is full of high quality companies that also have strong sales and earnings. In fact, I have two buy lists, my High-Growth Investments and Elite Dividend Payers portfolios, which are full of fundamentally superior stocks in a wide range of industries.
A diversified portfolio can actually help lower the risk of your portfolio, as some stocks will “zig” and others will “zag.” And my Growth investor Recommendations fulfill this goal perfectly.
No matter how the economy develops in the coming months, I am confident that my Growth investor The shares will continue to grow steadily.
(Be ready Growth investor Subscriber? Click here to log in to the members-only site.)
Sincerely,
Louis Navellier
Editor, Market 360
