Walmart is by far the largest retail company in the world. The bulk of its business is concentrated in the United States, where it is seen as a very popular and highly competitively priced chain. The strong inflation in the US is causing more and more middle and high income clients to save a few dollars by going to one of their centers. Group sales grew 8.4% in the second quarter of the fiscal year (May-July), to $152.859 million (about €149,000 million), the company reported on Tuesday.
Walmart is growing, but its margins are deteriorating. Inflation is causing customers to spend more on food, with prices rising more than 10%, and not having a lot of money left to buy clothes, household items and appliances, as it used to make higher margins and where it has had to apply more aggressive discounts in getting rid of stocks. Thus, the operating result decreased by 6.8% to reach $6854 million. However, some extraordinary results allowed net profit to increase by 20.4% in the first quarter to 6,854 million.
And the company had already announced at the end of July that it had problems with profit margins, a warning that caused a sharp drop in its shares, which has already happened with the poor results for the first quarter. It has now published some accounts that are actually better than what it indicated a few weeks ago and that exceed analysts’ expectations. In the first six months of the year total, sales grew 5.4% to 294,428 million and net profit increased 2.8% to 7,006 million.
Adding to changing consumer behavior are supply chain problems and an increase in business costs. Although inflation has begun to subside somewhat, the company believes the problems will continue into the second half of the year.
“We are pleased to see more customers choose Walmart during this inflationary period,” Group CEO Doug McMillon said in a statement. “The measures we have taken to improve inventory levels in the US, combined with the sales mix with increased weight in foodstuffs, are putting pressure on our second-quarter profit margin and our outlook for the year,” he admits.
According to CFO John David Rainey, more than three-quarters of the market’s earnings in food come from households with incomes greater than $100,000 per year.
Agreement with Paramount to provide TV to its customers
Walmart has entered into an agreement with Paramount to offer the Paramount + Essential Plan online pay-TV service to Walmart + members without a price increase. It’s a way to try to compete with Amazon without having to develop its own on-demand TV show, as the e-commerce giant has done with Amazon Prime Video. For Paramount, that means adding millions of new subscribers suddenly, albeit indirectly and with less revenue per customer.
Walmart+ is a service that costs $98 a year or €12.95 if it’s monthly and offers home delivery, gas station discounts, Spotify free and now, TV. Paramount + Essential, which is independently contracted, costs $4.99 per month and streams movies, series, and live sports, including some Champions League football matches.
In the statement announcing the deal, the company noted that Walmart+ has achieved positive member growth every month since its launch in September 2020. The company does not provide the number of subscribers. Analyst estimates vary widely, from 11 million to more than 30 million.