Rising borrowing costs and the resumption of student-loan repayments will add to the strain on US household budgets in the coming months, Walmart said Thursday as it reported earnings for the three months ended in late July. After a strong first half of the year, the midpoint of the retailer’s profit forecast for the current quarter slightly trailed analyst estimates. 

“Jobs, wages, and pockets of disinflation are helping our customers,” Chief Executive Officer Doug McMillon said on a conference call with investors and analysts. “But rising energy prices, resuming student loan payments, higher borrowing costs, and tightening lending standards, and a drawdown in excess savings, mean that household budgets are still under pressure.”

The mixed picture underscores Walmart’s success in grabbing more grocery sales from bargain-hunting shoppers — but also its vulnerability to the stress on US consumers, which may prompt some households to tap the brakes on spending in the second half of 2023. Earlier this week, Target Corp. and Home Depot Inc. reported comparable-sales declines as consumers pulled back from nonessential items. 

Walmart slipped less than 1% at 10:21 a.m. in New York. The shares climbed 12% this year through Wednesday, while the S&P 500 Index rose 15%.

Earnings Forecasts 

Adjusted earnings for the fiscal year ending in early 2024 will be as much as $6.46 a share, Walmart said in a statement. The world’s largest retailer had previously capped its profit outlook at $6.20 a share. Wall Street had been estimating $6.28. 

The annual outlook includes a headwind of only 5 cents a share from provisions related to last-in, first-out accounting, compared with a previous forecast of 14 cents. The accounting method is used to track inventory and can be volatile at times of swift changes in inflation. 

For the third quarter alone, however, Walmart forecast earnings of $1.45 to $1.50 a share. At the midpoint, that’s slightly lower than the average of analyst estimates compiled by Bloomberg. 

“Concern remains on the potential for slower US consumer spending” in the second half of the year, Evercore ISI analyst Greg Melich said in a note to clients. “The low- to middle-income consumer appears strained.”

Still, healthy back-to-school demand is likely to bode well for the holiday season, McMillon said. General merchandise sales, while soft, have been stronger than expected, he added.  

After Walmart’s sales and profit gains easily topped analysts’ estimates in the first half, the “second half could have upside,” said Oliver Chen, an analyst at Cowen Inc. 

US Gains

During the fiscal second quarter, comparable sales at Walmart’s US unit climbed 6.4%, ahead of the 4% average of analyst estimates compiled by Bloomberg. For the company as a whole, adjusted earnings of $1.84 a share topped the $1.70 projected by analysts. Walmart said it’s seeing demand from customers at all income levels, and e-commerce jumped 24% in the US. 

“The consumer is still spending, but they’re being discerning in their spending,” Chief Financial Officer John David Rainey said. “There continues to be a reasonable level of uncertainty in the economic backdrop for the balance of the year.”

At Walmart’s international unit, operating income rose 2.2% during the second quarter after adjusting for currency fluctuations. The company called out sales gains in Mexico, China and at Flipkart, its majority-owned Indian business. At Sam’s Club, operating income increased 22%. 

Walmart said Wednesday that Sam’s Club Chief Executive Officer Kath McLay will replace Walmart’s international chief, Judith McKenna, next month. McKenna will retire at the end of January.