What to watch as inflation cools

Inflation is falling. Consumers have been hunting for bargains and ditching pricey items, which has helped nudge prices down. Even though costs remain high, mega retailers like Walmart stand to benefit, as their cheaper items lure cost conscious shoppers.

The U.S. retail giant is set to announce second-quarter earnings on Thursday morning before markets open. The quarterly results could set the stage for other retailers such as Target and Lowe’s, which also report earnings in the coming weeks. Walmart’s performance may shed some light on how consumers are coping with inflation and rising costs, and whether Wall Street’s concerns of a recession are justified.

Walmart’s earnings will follow its massive stock gain in June, in which shares hit an all-time high after an upgrade from JPMorgan analysts who said the retailer had a “strong balance of defense and offense” against a softer consumer spendingbackdrop.

Considering Walmart’s size and scale, including its ability to spend a lot of cash on advertising and technology, its results may not necessarily be reflective of the retail industry more broadly. Even so, analysts say the retailer is likely to be one of the few to see big gains.

“Consumer trends clearly deteriorated in the last couple of months. While (Walmart) was probably not fully immune from this, it has surely performed better than others,” UBS analyst Michael Lasser said in a research note. Lasser added that the company has likely fared better than its competitors due to its “resilience and strategic investments,” but that its outperformance may fall short of expectations. He also said that Walmart’s chef-inspired Bettergoods private label and its back-to-school offerings are likely to have helped it during the quarter.

Bank of America analysts said in a research note that while Walmart’s grocery and wellness categories may continue to lag, its advertising business and improvements like store remodels and faster delivery options are likely to boost profit margins and overall performance.

In a summer filled with deals, shoppers have been making their way to a local Walmart, according to a new report from foot traffic analytics firm Placer.ai. The firm found that during the second quarter, visits to Walmart increased 3.9% when compared to the same period a year ago. The boost is modest when compared to the 12.2% jump Costco Wholesale saw, and the 7.4% increase for BJ’s Wholesale.

Walmart’s foot traffic increase may have been helped by its “Walmart Deals” week, the retailer’s first big summer sale, which it held July 8-11. During that time, the country’s leading retailer said it would offer discounts on a thousands of items, including back-to-school essentials, tech, toys, outdoor, travel, and more.

Jerry Sheldon, vice president of technology at the market research firm IHL Group, said that because inflation is still hitting middle-class consumers hard, those shoppers are turning to budget-friendly stores like Walmart.

Walmart’s “name is not mentioned among the throng of low-price retailers who are raising prices or raising prices in a manner that outpaces inflation,” Sheldon said, “The current economic conditions clearly favor Walmart.”