Walmart shares tumble after warning about weak holiday sales

According to Walmart, one of the largest retailers in the country, consumers are being more cautious with their spending this year.

Despite raising its forecast for sales and profit for the year, the company saw its shares fall 8% Thursday after executives revealed that higher interest rates and dwindling household savings have had an impact on sales over the past two months.

Chief Financial Officer John David Rainey explained that while Walmart's focus on groceries has helped mitigate the overall slowdown in discretionary spending, shoppers are still being choosy with their purchases.

This cautious behavior was also reflected by Target CEO Brian Cornell, who echoed Rainey's sentiments about shoppers waiting for deals before making their purchases.

With consumer spending accounting for roughly 70% of the economy, any decrease in retail sales is cause for concern. The Federal Reserve's decision to raise interest rates by 5 percentage points since March has also had a trickle-down effect on consumer lending and mortgage rates, making it more expensive for consumers to borrow money and spend.

This economic uncertainty has led retailers to warn that this year’s holiday season may not be as strong as in the past. Along with Walmart, other retailers like Children’s Place and Bath & Body Works reported mixed quarterly results on Thursday, while Macy’s had strong results.

Analysts believe that Walmart's slightly more cautious outlook is a wise move in light of the economic volatility and uncertainties surrounding the holiday season.

Analysts believe that Walmart's slightly more cautious outlook is a wise move in light of the economic volatility and uncertainties surrounding the holiday season.

Utilizing its size and scale, Walmart has been able to keep prices low, catering not only to low-income shoppers but also attracting higher-income consumers looking for affordable options. Despite inflation, prices on food and consumables have remained stable, while prices for general merchandise such as apparel and home goods have fallen slightly.

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Walmart's shares hit an all-time high of $169.91 on Wednesday after its rival Target projected higher-than-expected earnings for the fourth quarter. While Walmart's shares closed at $156.05 on Thursday, they are still up nearly 20% for the year.

With its positive outlook, Walmart now expects a hike in fiscal 2024 earnings per share between $6.40 and $6.48, higher than its previous forecast. The company also predicts a 5% to 5.5% increase in comparable sales for the year, an improvement from its previous estimate.

As the holiday season progresses, it will be interesting to see how these cautious predictions will play out and if Walmart's cautious approach will pay off in the end.