Walmart (WMT) shares opened lower on Thursday after the retailer reported third-quarter results that were slightly better than analyst estimates. Investors were dismayed by the company's more cautious outlook on the consumer. In an interview with Yahoo Finance Live, Walmart CFO John David Rainey says he was "pleased" with the earnings, but that during the last couple of weeks of October, the retailer saw "some trends that were a little different than the first part of the quarter." Rainey says the change could be due to things like weather or bigger picture issues with the economy. Based on the trends he is seeing, Rainey thinks "the consumer is being discerning, maybe choiceful, and buying these more discretionary items, these larger-ticket items, and they are leaning into these promotional or holiday-type events to buy those items and the shoulder periods around that are a little bit slower than what we've seen previously." Rainey also believes that consumer balance sheets are getting back to pre-pandemic levels, saying that "some of the resilience in consumer spending up to this point has been because of stronger balance sheets," adding that there are "a lot of mixed signals out there." Overall, Rainey says Walmart is gaining share, but "broadly, there's some stress on the consumer."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: All right. Walmart out with better than expected results. But we're seeing shares under pressure, some concerns about the company's outlook. Let's bring in really the man of the hour for us here at Yahoo Finance. That is Walmart CFO John David Rainey. John David, always nice to get some time with you.

So market concern a little bit about the outlook, are you seeing things in the business in recent weeks that would justify what the market is suggesting this morning?

JOHN DAVID RAINEY: Well, good morning Brian, it's great to be on the show first of all. I want to say we're really pleased with our quarter. We exceeded our expectations on both sales and EPS. And so I think our value proposition clearly is resonating with customers. But what we called out on the call was that we did see during the last two weeks of October some trends that were a little different than the first part of the quarter. We've seen consistent growth pretty consistent each month of the quarter in most categories of our business.

As we got into the back half of October, we saw that slip a little bit. And sometimes that can be related to unseasonal weather. It could be related to other things that are happening in the economy. And so we called that out because it was a little bit different than what we've seen for the first part of the year. That said, as we look into November and particularly around some of the events that we've had for our holiday shopping, we've seen pretty good strength.

And so what that tells me is that the consumer is being discerning, maybe choiceful, and buying these more discretionary items, these larger ticket items. And they're leaning into these promotional or holiday type events to buy those items. And the shoulder periods around that are a little bit slower than what we've seen previously.

BRIAN SOZZI: That change in sales cadence, John David, do you attribute that to student loans kicking back in October?

JOHN DAVID RAINEY: Well, you know, that probably affects our business less than others. But there are something like 27 million Americans, I think it's roughly 10% of the US population that are affected by student loans. And the estimates that I've seen suggest that that's somewhere between 5 and $8 billion a month in actual student loan repayments.

So there's no doubt it has some effect. But you've also got some other things that are happening. We're reaching that point where we're about a year after the Fed has started tightening and that's generally accepted that that's the period of time that it begins to take more an effect on the consumer. We're also seeing consumer balance sheets that are getting back to the level they were pre-pandemic.

I think some of the resilience in consumer spending up to this point has been because of stronger balance sheets. So there's a lot of mixed signals out there. Overall, our business is performing well. We're seeing strong growth in many aspects of our business. In particular, when we look at November month-to-date here, some of the categories that have been weaker year to date, apparel, home, electronics, we've actually seen strength in, and particular strength in our marketplace business, which has double digit sales in many of those areas. And so what that tells me is that customers are choosing Walmart, we're gaining share, they're coming to us for value, and convenience but broadly there's some stress on the consumer.

John David when it comes to some of those improving trends that you are seeing, I guess how optimistic are you that can continue as you look ahead to 2024. And some of the relief maybe that you are starting to hopefully see on the consumer, what is the timeline of that look like?

JOHN DAVID RAINEY: Well, when we talk about relief on the consumer, I think the first thing that we need to talk about is inflation. We've seen high inflation for two years now. When we look at the month of October broadly across the categories of our business, inflation is about 2%. So much better than what it was. And you actually have to look at that by category to really understand what's happening. So food and consumables tend to be in that 2% to 4% range. General merchandise is actually-- we've seen a pretty sharp drop off just in the last couple of weeks where that is deflating year over year.

So prices are less than where they were a year ago and actually getting pretty close to where they were two years ago. And so what the impact that that's had on the consumer is they've had less money, their wallets have been stretched more thinly because of higher prices. And so the focus on those things that they need versus the things that they want. And so as that pertains to the period of time that we're going into right now, the holiday shopping period, they're waiting for these holiday specials, for these big events to buy those bigger ticket items, those TVs, those homes-- the home and electronic type categories that we're seeing stronger spending in.

But I think everything else said, like we want to see lower prices. That's good for our customers. We want to be able to pass that along to them. And I think the consumer needs some relief right now.

BRAD SMITH: And John David, there has been that stretching of the sales period and some of those deals starting earlier on. I think Wal Walmart for its own had started some of those in basically the second week of October. And so all of that considered, when you see kind of a pull forward of some of those deals and trying to get consumers in the door earlier on, perhaps delivering on some of those holiday orders that they would have made later in the season, how does that change the comps kind of year over year here now, especially when you're pulling perhaps the successes of one quarter into a prior quarter?

JOHN DAVID RAINEY: Yeah. It's a great question. So much of our business is dependent upon the holiday shopping period. The fourth quarter in general is about 20% larger for us. And to your point on Black Friday, Black Friday really is no longer a day. It's more of a concept. We at Walmart started our events on November 8 with deals for our customers.

And even if you look at the period of time between Thanksgiving and Christmas, we have an extra day this year. That always distorts comps year over year. And so you tend to look at these things daily and look at the trends first thing in the morning and try to observe what's happening in the business. So we'll be watching closely over the holiday shopping period. But I think for us, we're really excited about the value that we're passing on to our customers.

I'll give you an example. For the Christmas holiday shopping period, we've got 25 items, 25 toys that are less than $25. And so we want to lean into these special moments for our customers and members, so that they can find the value and the items that they want at Walmart.

BRIAN SOZZI: John David, thank you for finally sticking a fork in Black Friday. I've been saying this for the past decade. It's just-- it doesn't even exist anymore. All these deals are coming out well in advance, months in advance in some cases. But before we let you go, are you just giving out open ended checks on all things AI? I mean, I've seen some stories out recently on what Walmart is doing in terms of AI and how it might change your-- or how you're warehousing and how you deliver goods. How much in terms of investment are you planning for AI related projects next year? And then can you point to one that is really going to change how you operate?

JOHN DAVID RAINEY: Yeah. Well, I don't think any CFO is going to be saying that they're giving out open ended checks on anything. But the returns around AI are really, really compelling. And probably the best example that I'll give you is for our customers when they come shop us, they're able to-- we're able to present offers to them in different categories of merchandise that we can see other customers do similar things. That's a great way to get customers to come to us, to use our e-commerce channels, to buy the things that they want, and some of the things that maybe they didn't even know they wanted when they came shopping for us.

SEANA SMITH: John David, we always appreciate you taking the time to join us here on Yahoo Finance. John David Rainey, Walmart CFO. Thanks so much.

JOHN DAVID RAINEY: Thank you.