Walmart (NYSE:WMT) CEO Doug McMillon has said that deflation could be coming as prices for general merchandise and grocery items move lower in the coming months.
McMillon made the comments on an earning call with analysts and investors where he discussed Walmart’s third-quarter financial results. If accurate, the CEO’s forecast of declining consumer prices would be good news for investors, as it would mean that there is no need for the Federal Reserve to continue raising interest rates to bring inflation back down to its 2% annualized target.
Encouraging Signs
When speaking on the earnings call, McMillon said that Walmart is already seeing prices come down for much of the merchandise in its stores, as well as for pricier grocery items such as eggs and seafood. In the coming weeks and months, prices for other items like pantry staples are also expected to decline. This would be good news for cash-strapped consumers who have been struggling with the higher cost of living since the pandemic ended and inflation peaked at an annualized 9.1% in June 2022.
“In the U.S., we may be managing through a period of deflation in the months to come,” said McMillon during the earnings call. “And while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”
A Tricky Outlook
McMillon made his comments after Walmart issued third-quarter results that beat Wall Street forecasts but disappointed with a downbeat outlook for the current fourth quarter and holiday season. Walmart reported EPS of $1.53 per share versus the $1.52 that was expected. Meanwhile, revenue in the quarter came in at $160.80 billion compared to $159.72 billion. Customer transactions rose 3.4% during Q3 and the average ticket grew 1.5%. Finally, e-commerce sales rose 24% year-over-year (YOY) during the quarter.
However, despite the strong Q3 results, Walmart provided a cautious outlook, saying that consumer spending is weakening heading into the year-end holidays. The company now expects EPS to range from $6.40 to $6.48 for 2023, which is below the $6.48 per share that analysts expect. WMT stock is down 8% today following the muted guidance, which overshadowed what was an otherwise strong print from the retailer.
What’s Next?
Any signs that inflation is coming down are positive for the stock market, as they decrease the likelihood that the Federal Reserve will raise interest rates any further. Data earlier this week showed that the U.S. inflation rate declined to 3.2% in October from 3.7% in September as consumer prices steadily fall from their peak more than a year ago. This inflation reading sent stocks skyrocketing, with the Dow Jones Industrial Average rising more than 500 points in a single trading session. If Walmart CEO Doug McMillon’s prediction holds true, it could add more fuel to the fire that has markets rallying.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
