• by Sarah Mahoney  @mahoney_sarah, August 15, 2024

 Walmart's back-to-school sales are doing well so far.

Economic nailbiters got a double dose of relief, with Walmart posting a strong set of second-quarter financial results and the government reporting better-than-expected sales for July. Both contributed to a rally in the stock market, as investors breathed a little easier about whether consumers would rein in spending due to worries about their finances.

Walmart’s consolidated revenue grew 4.8% to $169.3 billion, compared to $161.6 billion in the same period a year ago. Sales at Walmart U.S. grew by 4.1%, showing gains in both the number and dollar value of transactions.

Operating income rose 8.5% to $7.9 billion, up from $7.3 billion in the year-ago quarter.

Those results beat expectations.

Walmart’s advertising sales business continues to boom, up 26%, with ad sales on Walmart Connect in the U.S. rising 30%.

Walmart is projecting similar gains in the months ahead, predicting a sales increase of between 3.25% and 4.25% in the next quarter and increasing its full-year goals. It now expects sales gains of up to 4.75% for the full year.

The company's shares rose to a record level.

More good news about consumer spending came from the U.S. Census Bureau, which reports that overall retail sales notched a 1% increase from the previous month and a 2.7% gain year-over-year. That indicates concerns about slowing growth -- worries severe enough to give stocks a major jolt earlier this month -- may have been overblown. Consumers seem to feel good enough about the economy that they are still willing to spend.

“July’s retail sale figures mirror the strength in the economy, which continues to expand even though there are pressures on growth,” says Jack Kleinhenz, chief economist at the National Retail Federation, in his note. “The midsummer boost from back-to-school and college spending, along with special deal days offered by retailers, clearly helped. Households are proceeding with measured spending and benefiting from falling retail prices despite still-elevated service prices. Even with the growth of the labor force cooling, consumer spending remains the backbone of the economy and keeps the expansion on a positive path.”

Wall Street liked the news. At one point, the Dow Jones Industrial Average was up 500 points.

Walmart continues to build its market share, especially in groceries. It says that upper-income households continue to account for most gains, even while its share among middle- and lower-income households grows. Company executives say its private brands keep attracting new buyers and they are “highly encouraged” by people’s response to Bettergoods, Walmart's new higher-end private food label.

Industry experts have different ways of interpreting those trends and what they say about consumer confidence. Is it a bad economic sign that more affluent people are trading down to Walmart, chasing those Every Day Low Prices? Or is it a good sign that so many consumers of all income levels are happy to spend a little more for Walmart’s organic chocolate milk and pistachio nut butter?

“There is an ongoing debate around how many of the higher income shoppers will stick with the grocer as inflation eases and as, over time, household finances normalize," writes Neil Saunders, managing director of GlobalData, a market research firm. “We are optimistic on this front. Very few higher income consumers are shopping at Walmart with gritted teeth.”