Holiday shoppers are turning to Walmart for groceries and gifts, but CEO Doug McMillon predicts what sales will do in the months after the peak shopping season. He said it was difficult to do so.
In an interview with Sarah Eisen that aired on CNBC’s “Squawk on the Streets” on Wednesday, leaders of the world’s largest retailers said rising credit card balances and declining household bank accounts , said there are questions about how much consumers will spend even after they show more resilience. This year is better than expected.
“If we had talked about it last spring or early last year, we would have expected it to be even softer by this time of year than it actually is,” he said. But, he added, “next year will be different.”
McMillon said deflation in some items is creating new dynamics at Walmart. Prices for general goods, including electronics, toys and other non-food products, have fallen by about 5% compared to a year ago, he said.
For example, McMillon said Walmart has 25 toys under $25 this holiday season, including Hot Wheels cars for $1.18.
He said prices in the food category are roughly where they were a year ago, although fresh produce tends to fluctuate.
He said the company’s non-food sales are “starting to come back.” The back-to-school season helped fuel some of that rebound.
“It will be interesting to see what happens in the general merchandise category over the next year as prices have come down significantly,” he said.
Walmart has set itself apart from many other retailers over the past year, as its large grocery business and reputation for low prices have boosted earnings and stock prices even as retail sales have slumped. As of Tuesday’s close, Walmart stock had risen nearly 10% since the beginning of the year, hitting an all-time high in mid-November.
The discounter released full-year forecasts in November that were lower than expected, but unlike Target, Macy’s and other retailers, it expected sales growth. Walmart expects consolidated net sales for the current fiscal year to increase 5% to 5.5% and adjusted earnings per share to be between $6.40 and $6.48.
Deflation, or falling prices, will make for tough comparisons for Walmart and other retailers. If each product costs less, businesses will have to work harder to sell more products.
McMillon said he believes Walmart can drive growth in such an environment. And shoppers also need to ease pressure on their budgets, he said.
Despite the challenges deflation would pose to Walmart, “we’d rather have low prices than high prices,” he said.