Walmart CEO expects to see ‘period of deflation’ in the coming months

However, it is too early to tell how dramatic the deflation will be, according to McMillon.

Earlier this week, Cathie Wood, chief executive at ARK Invest, said that a deflation trend has begun in the U.S., which may prompt the Federal Reserve to start cutting its key interest rate.

See also: Target CEO says consumers are still spending, but sees pressure on discretionary items

Walmart Inc.’s stock tumbled 7% Thursday, after the company offered guidance for 2023 that was below consensus, offsetting a profit and sales beat for the third quarter. That put the stock on track for its biggest one-day decline since July 26, 2022, when it fell 7.6%, according to Dow Jones Market Data.

McMillon said that in the U.S., pricing levels on many food categories “continue to be a concern,” adding that they are putting pressure on consumers. However, he said, prices of general merchandise continue to come down, positioning Walmart well for the holiday season.

But Walmart did see softness in late October, according to executives on the conference call. Walmart Chief Financial Officer John David Rainey pointed to a number of factors that could explain the weakness, including credit tightening, repayment of student loans and also “anomalous weather” in the back half of October.

D.A. Davidson said taking a cautious approach to the holiday season makes sense. And the October slowdown was offset by a strong start to November, wrote analyst Michael Baker, who expects that apparel was a standout.

“And this potentially sets up for another beat, which has been WMT’s M.O. all year,” said the analyst, who has a buy rating on the stock.

TD Cowen analyst Oliver Chen said Walmart is positioned to shine when consumers are under pressure. “We like Walmart’s position for holiday share gains given exciting rollbacks like in Barbie’s Malibu House,” said Chen, who rates the stock at outperform, the equivalent of buy.

The Bentonville, Ark.-based retail giant
WMT,
-8.09%
posted net income of $453 million, or 17 cents a share, for the quarter, after a loss of $1.8 billion, or 66 cents a share, in the year-earlier period.

Related: Deflation is now the ‘greater risk’ because the Fed overtightened, says Cathie Wood

Adjusted per-share earnings came to $1.53, ahead of the $1.52 FactSet consensus.

Revenue rose 5.2% to $160.8 billion from $152.8 billion, also ahead of the $159.7 billion FactSet consensus.

Walmart’s U.S. same-store sales rose 4.9%, while e-commerce sales rose 24%. Average transactions were up 3.4%, while the average ticket was up 1.5%.

In a statement, McMillon said that the company saw revenue grow across segments and that it was getting an early start to the holiday season.

Related: Retail ‘shrink’ is about much more than theft, analysts say

In the company’s international segment, growth in sales was led by Walmex and China. E-commerce sales fell 3%, while advertising grew 4%.

At Sam’s Club U.S., sales rose 2.8% to $22 billion from $21.4 billion a year ago, led by food and consumables and healthcare. Same-store sales rose 3.8%, transactions were up 4% and average ticket was down 0.2%.

The company said it was raising its full-year guidance and now expects adjusted EPS of $6.40 to $6.48, below the FactSet consensus of $6.50. It expects sales to grow 5% to 5.5%, while FactSet is expecting growth of 5%.

The stock has gained about 20% in the year to date, while the S&P 500
SPX
has gained 17%.

Frances Yue contributed.