What Walmart earnings may be forecasting for the U.S. consumer

Yahoo Finance Live breaks down mega-retailer Walmart's latest earnings report and what it may be predicting for the state of the U.S. consumer going forward in 2023.

Video Transcript

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DAVE BRIGGS: --mentioned to see how the market absorbs them, too, as Walmart fell precipitously on the news and then just began to come back throughout the day towards the close. Big retailers casting a shaky outlook on the state of the consumer heading into '23. Walmart says it expects adjusted earnings per share to decline over the next year. A stark contrast from the upbeat hopes of Wall Street analysts.

Here's what Walmart CEO Doug McMillon said about the health of the consumer.

DOUG MCMILLON: I think you can see it in the mixed impact. Customers are still spending money. When you think about our guidance and the place we positioned, it it's obviously not as clear to us what the back half of the year looks like, is what we're experiencing right now and the momentum that we had coming out of the fourth quarter. But that's why we would characterize them. They're making choices. We expect that to continue through the year.

DAVE BRIGGS: And take a look at Walmart's ecommerce growth. That sales segment, 17% up the fourth quarter compared to 8.3% growth for US same-store comp sales as a whole. Interesting to see that breakdown, not necessarily following along the trends.

But when you listen to their CE-- CFO this morning, two things come out in terms of you look at the big picture, when you zoom out a little bit. He says, that the consumer is really pressured. And on the macro, they are very cautious. And that's why they're projecting, not a great number for '23. But when you look at the share price, come back, and as that bad news was absorbed, not as bad as initially feared.

SEANA SMITH: Yeah, not as bad. And I think there's lots of questions out there about how exactly Walmart is going to handle the next couple of quarters because, yes, they are seeing their consumer be pressured on the flip side. They are seeing higher prices from some of their suppliers-- Procter & Gambel, Unilever saying that they will continue raising prices this year. Putting Walmart in a pretty tough spot because they have to decide whether or not they are going to pass that higher price along to the consumer. If not, then, of course, that would further pressure their margins here going forward.

The trade down, though, is something that we started to notice going back to last year. Certainly seems like that has continued with grocery. That division being a sure stand out here for the last several months for Walmart. Grocery sales increasing in the low 20% basis on a two-year basis. So take a look at that type of growth in the grocery division. More and more people are choosing Walmart as they are having to make those tough choices of where to spend and how to spend their money.

DAVE BRIGGS: Yeah, it was interesting to see them increase their market share in grocery in particular because the higher income households are beginning to trade down to Walmart. That, to me, above all else, was the most surprising thing from the report because we knew that people are spending less on goods. They're not gonna buy the TVs. They're not buying as many gifts. We knew they were gonna buy grocery and that's what's gonna sustain them. But surprising to see those higher income households trade down to Walmart.

SEANA SMITH: Yeah. And certainly really tells us a lot about the macro environment that we are in right now.