Walmart reported its first quarter earnings on Tuesday, and the results were good. Revenue for the quarter, which ran from February 1 through April 30, was 10 percent higher than a year earlier. Operating income was only up 5 percent, because consumers switched toward buying more products with low profit margins, like groceries, and the COVID-19 epidemic made it more expensive for Walmart to operate. Still, any rise in income is a strong outcome considering all the trouble that exists in the world economy. Walmart’s unusually good performance is reflected in the fact that its stock is up 5 percent this year, even as the S&P 500 is down nearly 10 percent.
But the most interesting aspect of Walmart executives’ comments accompanying the earnings announcement — in terms of learning about the broader economy from what’s going on at Walmart — was qualitative. Walmart CEO Doug McMillon described three waves of sales bumps as consumers responded to the COVID-19 epidemic. First came the “stock-up phase,” which entailed “unprecedented demand in categories like paper goods, surface cleaners, and grocery staples.” In the second phase, shoppers bought items to help them adjust to a new style of living, in which they would have to work, teach, exercise, and keep entertained at home. Sales spiked for video games, bicycles, laptop computers, office chairs, sewing machines — things you might not have identified as pandemic staples on March 1 but that have turned out to be. After that second bump, sales softened in early April. But then there was a third wave of spending that began after Easter.
“Call it relief spending,” said McMillon, “as it was heavily influenced by stimulus dollars leading to sales increases in categories such as apparel, televisions, video games, sporting goods and toys. Discretionary categories really popped towards the end of the quarter.” He also noted that this boost in spending on discretionary goods categories has continued into the first part of May.
This is good news not just for Walmart shareholders but for the broader economy. It’s a sign that government benefits from the CARES Act aren’t just reaching the public, but that many members of the public feel sufficiently sound in their financial situations to spend those benefits on items they do not strictly need, instead of saving them in preparation for a long bout of unemployment. (A Quinnipiac Poll out Wednesday found 72 percent of respondents described their financial situations as “excellent” or “good,” down only 5 points from last June.) In other words, the results from Walmart suggest the stimulus is already stimulating some demand, even as you might expect consumers to save their stimulus checks, either for a rainy day or because the splurge items they want most (vacations, perhaps, or restaurant meals) remain unavailable.
I should note that Walmart’s sales of discretionary items should rebound earlier and faster than sales of such items economy-wide. Walmart is open while many specialized retailers are closed, so if you want to buy apparel, you’re probably more likely to buy it at Walmart today than you would be under usual circumstances. Walmart improved its sales in April despite a sharp, economy-wide drop in retail sales. Still, the trends across time within Walmart’s own sales are indicative. The company says its apparel sales were down 14 percent this quarter from one year earlier, but that by the latest part of the quarter, apparel sales had gotten to be higher than they were the previous year. That’s the first step in an economy-wide rebound in apparel spending that’s going to take quite a bit more time to ramp up to normal. But it’s a sign that consumers are already more willing to spend than they were a few weeks ago.