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Walmart said prices for some of its products did not fall as much as expected during the latest quarter, reflecting the sticky inflation environment in the United States that is prompting investors to reassess when the central bank begins cutting interest rates.
Chief Executive Officer Doug McMillon said in November that the world’s largest retailer could find itself “managing a period of deflation” in early 2024, in a potentially encouraging sign for the broader economy given its reputation as a Walmart as a consumer indicator.
McMillon said Tuesday that Walmart’s general merchandise category in its U.S. operations was “there” in terms of its “deflationary position,” but in the three months through January, “the slope of the decline has softened.”
Prices are lower than a year ago, he told analysts, “but not as much as the trend line would have suggested” at the end of the previous quarter. Prices of food and consumables are “slightly higher than a year ago,” she added.
McMillon’s comments come a week after official data showed U.S. inflation fell less than expected in January, prompting investors to scale back bets on the Federal Reserve already easing monetary policy. starting in May.
“Our general merchandise prices are lower than they were a year ago, even two years ago in some categories,” McMillon said. Prices of eggs, apples and snacks fell from 12 months ago, but prices of asparagus, blackberries, paper goods and cleaning products increased.
Walmart reported strong quarterly sales and revenue, supported by solid holiday spending, but signaled slowing growth next year.
The Arkansas-based company made about $172 billion in consolidated net sales in the three months ended in January. This is an increase of 5.6% compared to the same period last year and $1 billion more than analysts’ expectations. But it expects growth between 3-4% over the next 12 months, below the 4.5% expected by Wall Street.
Fourth-quarter net income of $5.5 billion fell 12.4% from a year earlier but came in about $1 billion above analysts’ forecasts.
The company also announced a deal to buy television maker Vizio, a $2.3 billion acquisition that it hopes will help it grow Walmart’s advertising business.
The retailer said the acquisition would “further accelerate Walmart’s media business in the United States” by integrating Vizio’s advertising business with the enormous reach the retailer already has across its multiple sales platforms.
“We believe too [Vizio] enables a profitable advertising business that is rapidly expanding. Our media business, Walmart Connect, helps brands create meaningful connections with the millions of customers who shop with us every week,” said Seth Dallaire, Walmart’s chief revenue officer.
Walmart’s move further highlights its intention to further diversify its revenue stream beyond simply selling goods. The move comes as advertising has become a major revenue stream for e-commerce giant Amazon.
Walmart generated about $3 billion in advertising revenue in 2023, while Amazon’s advertising business had sales of nearly $38 billion in the same period and is growing rapidly. In the third quarter of last year, according to the most recent data available, Amazon recorded advertising sales worth $12 billion.
Walmart shares rose nearly 6% in early Wall Street trading Tuesday, while Vizio jumped 15.7%.