Holiday shoppers turn to Walmart for groceries and gifts, but CEO Doug McMillon said it’s hard to predict what sales will look like in the months after the peak shopping season.
In an interview with Sara Eisen that aired Wednesday on CNBC’s “Squawk on the Street,” the head of the world’s largest retailer said higher credit card balances and dwindling household bank accounts raise questions about how much consumers will spend – themselves if they are more resilient than expected this year.
“If we had talked about this last spring or early last year, I would have expected more weakening at this time of year than we are actually experiencing,” he said. But McMillon added: “Next year is a different story.”
McMillon said deflation is creating new momentum for Walmart on some items. For general merchandise, the category that includes electronics, toys and other non-food items, prices fell about 5% from a year ago, he said.
This holiday season, for example, Walmart is offering 25 toy items under $25, including a Hot Wheels car for $1.18, McMillon said.
Prices in grocery categories are about the same as a year ago, although fresh foods tend to fluctuate, he said.
McMillon said the company has seen the volume of its non-food sales “increase again.” The start of school partly contributed to this recovery.
“It will be interesting to see what happens in general merchandise categories next year because prices are so much lower,” he said.
Walmart has stood out from many other retailers over the past year as its large grocery store and low-cost reputation have supported its sales and stock price at a time of weaker retail sales. As of Tuesday’s close, Walmart shares had risen nearly 10% this year, reaching an all-time high in mid-November.
The discount retailer gave lower-than-expected full-year guidance in November, but forecast sales growth unlike Target, Macy’s and other retailers. Walmart expects consolidated net sales to increase 5% to 5.5% and adjusted earnings per share for the fiscal year to be $6.40 to $6.48.
Deflation – or falling prices – will create difficult comparisons for Walmart and other retailers. When every item costs less, companies have to work harder to sell more items.
McMillon said he is confident Walmart can continue to drive growth in this environment. And, he said, consumers also need to ease the pressure on their budgets.
Despite the challenges deflation would pose for Walmart, “we would rather have lower prices than higher prices,” he said.
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