“I believe in the ‘Walmart’ school of business. The less people pay, the more they enjoy it.” – Garth Brooks
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Investors have long used Walmart’s WMT earnings to gauge the financial health of the everyday, working-class U.S. consumer. When the Bentonville, Ark. retail giant reports its first-quarter results tomorrow before markets open, investors might also be able to assess the financial health of the higher-income demographic.
Ever since the post-pandemic inflation surge, economic uncertainty has driven even families with annual incomes well above the median to head to “the Mart” to keep their households running. The youth demographic has seen Walmart as “cool” for some years, but for families, it’s been more about coping with inflation and with economic uncertainty brought on by developments such as broad-scale tariffs, geopolitical tensions, and a cooling labor market.
Walmart has viewed this as an opportunity to capture and lock in a key demographic once viewed as an unattainable domain of rivals like Target. It has created a pricer, higher-margin in-house grocery label, expanded its product offerings to include luxury goods, revamped its online marketplace, and tapped into its already-extensive network of brick-and-mortar locations to compete with its other rival, Amazon, in offering speedy convenient delivery and pickup capabilities. This last one has helped Walmart capture a cohort that has traditionally been reluctant to actually set foot in a physical Walmart store.
This has driven much of Walmart’s recent market-share and revenue growth: it arguably is the reason Walmart has beaten revenue expectations for seven out of the last eight quarters. Perhaps more importantly given the higher margins associated with targeting the wealthy demographic, Walmart has also beaten earnings expectations for seven out of the last eight quarters.
We’ve written previously about the K-shaped demographic, and how consumer spending from higher-income households has been propping up the consumer economy. While Walmart is still in no way a primary gauge of wealthy spending habits in the way a luxury company like LVMH is, retail-market research suggests that Walmart has successfully changed the thinking of high-income households, normalizing the idea of habitually shopping at what was once dismissed as a discount chain – they are now arguably less likely to flee to bougier venues when their fortunes improve.
Walmart’s results can thus tell us about how robust a fundamental pillar of the economy still is. Before, a decline in results, particularly in sales generated by parts of the business targeting higher-income consumers, might have been interpreted as a strengthening economy giving this cohort the confidence to head back to higher-end stores. Now, however, it might well be a secondary signal that even wealthier consumers’ wallets are starting to get tapped out.
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SPX and QQQ showed initial signs of bearish reversal in Friday’s session, with a strong negative breadth reversal occurring directly within the 5/15-5/19 cyclical window.
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 5/20 | 2:00 PM | Apr 29 FOMC Minutes | n/a | 0 |
| 5/21 | 9:45 AM | May P S&P Srvcs PMI | 51.1 | 51 |
| 5/21 | 9:45 AM | May P S&P Manu PMI | 53.8 | 54.5 |
| 5/22 | 10:00 AM | May F UMich 1yr Inf Exp | n/a | 4.5 |
| 5/22 | 10:00 AM | May F UMich Sentiment | 48.2 | 48.2 |
| 5/26 | 9:00 AM | Mar S&P Cotality CS 20-City m/m | n/a | -0.05 |
| 5/26 | 10:00 AM | May Conf Board Sentiment | 92.5 | 92.8 |