Amazon Tightens Belt as World Waits on Inflation Response and Walmart Q3

It has been a great couple of days for Amazon investors as cooling inflation data triggered a bounce in its sagging stock that hadn’t been seen in months. Notably, Walmart did not participate in that short-term rally, but its value prop and long-term prospects continue to resonate with consumers and investors alike.

Just how that translates to the top and bottom line of the 60-year-old operator of over 10,000 stores worldwide will be revealed Tuesday morning (Nov. 15), when the retailer releases its earnings results for three months through October.

Stepping back to Walmart’s second-quarter results in mid-August, the retailer was facing a stretched consumer that was reprioritizing shopping toward groceries and essentials and away from discretionary items in the face of high inflation, bulging inventories and lots of promotional competition. It’s a narrative that is largely intact and one that has seen Walmart’s stock rewarded with a 10% gain in the past 90 days compared to a 30% drop in Amazon and a 5% decline for the S&P 500.

“We’re building a different business, and we’re making progress,” Walmart CEO Doug McMillion told investors and analysts on the company’s Q2 earnings call back in August, noting the mid-teens growth and share gains the retailer was experiencing in its industry-leading food and consumables business.

“The quality, value and convenience we offer makes Walmart a smart choice, and we’re seeing more middle- and higher-income shoppers choose us,” McMillon added.

Although Thursday’s headline inflation rate came in at a much improved 7.7%, down for the fourth straight month since peaking in June at 9.1%, the report also confirmed that food prices — particularly for groceries eaten at home — are still running at a hot 12% annualized pace. Add in higher electricity bills and heating oil, as well as a darkening employment picture amid scores of recent big-name layoff announcements, and consumers are justifiably more cautious than the economic tea leaf readers who track the data.

“We think value-focused retailers will continue to gain market share next year on accelerating trade down,” Deutsche Bank Analyst Krisztina Katai wrote in a note to clients Friday, flagging Walmart a defensive top pick within what is projected to remain a challenging economic environment.

For Amazon, the two weeks since it reported Q3 results have a seen a flurry of changes and revisions to policy and practices, all of which are in-line with Chief Financial Officer Brian Olsavsky’s promise to do more with less.

“As we’ve done in similar times in our history, we’re taking actions to tighten our belt,” Olsavsky said in late October.

To that point, with a stock price that, even after this week’s bounce, is still down 40% or 1 trillion dollars for the year, Amazon is reportedly taking a closer look at some of its core cost centers, such as its Alexa voice-driven ecosystem, which has lost $5 billion in recent years.

This, coming the day after Amazon announced plans to expand its reach with Alexa to new young users via devices that look and talk like owls or dragons.

How it all plays out, and how quickly consumers respond to changing conditions compared to the instant reaction of investors, will get another big test Tuesday morning when Walmart updates the world.

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