Dive Brief:

• Walmart’s comparable-store sales in the United States rose 4.9% during its third quarter of fiscal year 2024 as the retailer saw a softening in general merchandise sales that partially offset strength in its grocery and health and wellness offerings.
• Walmart’s U.S. business saw mid-single-digit growth in grocery — a category that continues to post “strong” share gains in both units and dollars, Walmart CFO John David Rainey told investors on a Thursday earnings call. 
• With the winter holiday season fast approaching, Walmart is looking to lower grocery prices to give consumers more capacity for general merchandise spending, Rainey told investors.

Dive Insight:

Even as Walmart has continued its grocery market share growth, executives flagged how the continuation of high food prices is impacting both consumers and its bottom line. 

While grocery inflation moderated from the prior quarter, food prices are still elevated “at a high teens percentage” on a two-year stack, Rainey said. 

“We see our customers showing ongoing discretion in making trade-offs to be able to afford the things they want, given the sustained high costs of the things they need,” Rainey said. 

In the U.S., cost levels in many food categories continue to be a concern, but the retailer is seeing lower pricing in dairy, eggs, chicken and seafood, Walmart President and CEO Doug McMillon said on the call. 

“The pockets of disinflation we are seeing are helping but we'd like to see more, faster, especially in the dry grocery and consumables categories,” McMillon said. “In the U.S. we may be managing through a period of deflation in the months to come, and while that would put more unit pressure on us, we welcome it because it's better for our customers.”

Walmart saw traffic growth across both in-store and digital channels, and the retailer’s value proposition is resonating with consumers amid turbulent times, executives said. Walmart is pleased with the performance of its store remodeling efforts with consumers responding well to the new assortments, executives said. 

The retailer is thinking “slightly more cautiously about the consumer versus 90 days ago” due to uneven sales in recent months, which included a softening in the back half of October followed by higher sales during November, Rainey said. He noted the impact of the Federal Reserve raising interest rates, student loan repayments and anomalous weather could have been factors that impacted the October performance.

Walmart’s U.S. e-commerce sales were up 24% in Q3, fueled by strength in pickup and delivery and a 26% increase in the retailer's ads business Walmart Connect. Rainey noted that multi-channel shoppers are “more valuable, engaging more often and spending more with us.”

During the quarter, Walmart opened its third “next generation” e-commerce fulfillment center and announced plans for its fifth such facility. 

Rainey noted that Walmart is on track to have seven stores with automated market fulfillment centers, which stock thousands of the most sought-after items, operating by the end of this month.

“As we focus on improving e-commerce margins, we're making good progress in lowering digital fulfillment cost and densifying in the last mile by tapping our broad store and club network,” Rainey said, adding that Walmart U.S. has increased the percentage of digital orders fulfilled by stores by 800 basis points over the past year. 

On the digital innovation front, McMillon said that Walmart has started using generative AI to improve search and chat experiences and is testing the tech for some customers using the retailer’s app on iOS. The retailer plans to roll out the offering to more users in the coming weeks and months.

Walmart’s operating income in Q3 took a hit from larger-than-anticipated expenses, including higher legal costs as well as increasing costs associated with wages and store remodels, Rainey said. 

Walmart slightly raised its full-year guidance based on the expectation that sales growth will moderate in Q4 compared to prior quarters based on expectations that grocery inflation will further normalize coupled with Walmart’s increased traffic and share gains. The retailer is now expecting its fiscal year 2024 net sales to have growth between 5%-5.5%, up from the previously predicted 4%-4.5% but maintained its operating income range forecast. 

“We expect the relationship between profit and sales growth to favor profitability in Q4 and for the full year to align with our goal of operating income growing faster than sales,” Rainey told investors.