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Pent-up demand, stimulus power Walmart’s ‘optimism’ for the year

imageWorld40 minutes ago (May 18, 2021 09:12AM ET)

(C) Reuters. FILE PHOTO: A Walmart sign is seen inside its department store in West Haven, Connecticut, U.S., February 17, 2021. REUTERS/Mike Segar/File Photo

By Aishwarya Venugopal and Richa Naidu

(Reuters) -Walmart Inc on Tuesday raised its full-year earnings forecast after shoppers armed with government stimulus checks ventured back into stores, driving demand that is expected to continue through the year as Covid-19 restrictions ease.

Shares in the world’s biggest retailer were up about 4% in premarket trade after it reported a strong quarterly sales beat and said it expects fiscal 2022 earnings to increase by high single digits. It had previously forecast a slight decline in profit for the year.

Walmart (NYSE:WMT) has had a bumper year bolstered by a big push into e-commerce and delivery. While this trend towards shopping online is expected to continue, people are also making their way back to brick-and-mortar stores as vaccinations become more widely available. Visits to Walmart stores around the country grew by 21.7% in April, according to data firm Placer.ai.

On Friday, Walmart began allowing fully-vaccinated people to shop without wearing masks, making it the first major retailer to walk back its mandatory mask policy.

“Our optimism is higher than it was at the beginning of the year. In the U.S., customers clearly want to get out and shop,” Chief Executive Officer Doug McMillon said in a statement. “We anticipate continued pent-up demand throughout 2021.”

People gravitated towards apparel, recreation and home improvement products like outdoor living and sporting goods, Walmart said.

The Bentonville, Arkansas-based retailer benefited from a wave of stimulus-driven consumer spending, with many qualified households having received additional $1,400 checks as part of a Biden administration package approved in early March.

Sales at U.S. stores open at least a year rose 6%, excluding fuel, in the first quarter ended April 30. Analysts had estimated growth of 0.86%, according to IBES data from Refinitiv.

Wall Street has been afraid to push Walmart estimates too high because of the uncertain environment. But a strong consumer has been driving retail, said Randy Hare, director of equity research at Walmart investor Huntington Private Bank.

Online sales lost some momentum, rising 37%, compared with a surge of 74% in the year-earlier period and 69% in the prior quarter.

The retailer has made big investments in its delivery business, hoping to sneak an edge over rival Amazon.com (NASDAQ:AMZN) with its membership plan Walmart+, drone delivery pilot programs as well as a bigger third-party marketplace.

Still, McMillon warned that the second half of the year would have more uncertainty than a typical one.

Operating income rose 32.3% to $6.91 billion in the quarter, while Walmart reported adjusted earnings of $1.69 per share. Total revenue rose 2.7% to $138.31 billion.

“Despite continuing global macroeconomic uncertainty, this is a reflection of its (Walmart’s) exceptional execution as it can continue to ‘shift on the fly’ as necessary,” Moody’s (NYSE:MCO) retail analyst Charlie O’Shea said.

Pent-up demand, stimulus power Walmart’s ‘optimism’ for the year