Walmart reported third-quarter earnings that outperformed Wall Street expectations by a wide margin as the nation’s largest retailer came under pressure from rising fuel costs and higher inventory levels.
Shares of the company fell more than 12% early on Tuesday afternoon, after reaching a 52-week low of $ 130.64.
Walmart is a well-monitored company, as investors and economists look for evidence of how the American consumer copes with inflation.
The results of the quarterly discount “were unexpected and reflect the unusual environment,” CEO Doug McMillon said in a statement Tuesday morning. Inflation in the US is at a four-decade high. The consumer price index, a broad measure of prices for goods and services, rose 8.3% in April from a year earlier, according to the Bureau of Statistical Labor.
The significant jump in fuel prices, rising labor costs and aggressive inventory levels has weighed on the company, CFO Brett Biggs said in an interview with CNBC. He said some goods arrived late and other items, such as barbecues, plants and pool chemicals, were not sold due to “unusually cool weather in the US”.
In addition, he said, Walmart employees returned from Covid leave sooner than expected and challenged the company to overcrowding during part of the quarter. He said these planning challenges have been resolved.
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The company boosted its sales outlook this year, saying it expects net sales to grow by about 4% in fixed currency for the full year. It previously predicted a 3% increase. But Walmart also lowered earnings expectations. Earnings per share for the year will fall by about 1% compared to the average single-digit increase previously expected, the company predicted.
See what Walmart said for the first quarter ended April 30, compared to Refinitiv Consensus estimates:
- Earnings per share: $ 1.30 adjusted against $ 1.48 expected
- Revenue: $ 141.57 billion reported against $ 138.94 billion expected
Walmart’s net income for the quarter fell to $ 2.05 billion, or 74 cents a share, compared with $ 2.73 billion, or 97 cents a share a year ago. The company ‘s adjusted earnings were $ 1.30 a share, 18 cents a share less than financial analysts had expected, according to financial market data provider Refinitiv.
Walmart’s adjusted earnings do not include gains and losses on equity investments in the company, as well as the gradual loss from the sale of its operations in the United Kingdom and Japan in the first quarter of the previous financial year.
Total revenue rose to $ 141.57 billion from $ 138.31 billion a year earlier, above Wall Street’s expectations for $ 138.94 billion.
Sales in the same stores for Walmart US increased by 3% compared to last year or 9% on a two-year basis. E-commerce sales increased by 1% or 38% on a biennial basis.
Walmart-owned warehouse club Sam’s Club saw sales in the same store increase by 10.2% year-on-year or 17.4% year-over-year.
Bigger food sales, lower profits
The grocery store, Walmart’s top selling category, is one of the company’s most affected categories. Food costs rose 9.4% in April on a 12-month basis, according to unadjusted data from the BLS.
As shoppers seek value, Walmart is gaining market share in grocery stores, Biggs said in an interview with CNBC. However, this has a price. Food sales are pushing profits as the retailer sells more low-margin items such as eggs and bread and fewer higher-margin items such as clothing and electronics.
Rising inventory levels and higher supply chain costs also led to Walmart’s profits, McMillon said in a profit call.
The stock rose about 33% as the retailer made aggressive purchases to outperform inflation and make sure items remain in stock. Some goods also arrived late or remained in storage, especially seasonal items such as landscaping supplies as the spring weather was cold and rainy in much of the country.
To improve the commodity mix, McMillon said the company increased the number of repatriations or price reductions in clothing in the first quarter.
McMillon and Biggs said in the profit call that they expect Walmart to sell through higher inventory levels in the coming quarters, especially as hot weather arrives and inspires buyers to start looking for patio furniture and new clothing.
Biggs told CNBC that the second quarter was “a good start in terms of sales.”
Customers with a limited budget
Along with declining overall merchandise sales, Walmart sees other signs that some households are feeling budget-constrained. The average ticket price for customers in the US increased by 3% due to inflation, but the number of items in the baskets has decreased, McMillon said in the profit call.
Sales of half a gallon of milk and Walmart’s private sausage brand have skyrocketed, Biggs told CNBC.
The discounter is trying to strike a balance between keeping prices low while not letting profits slip further, McMillon told analysts on the profit call.
“Price leadership is very important right now and one-stop shopping becomes more than just convenience when people pay more than $ 4 a gallon for fuel,” he said.
McMillon said Walmart is paying close attention to the “food openings” that low-income households have to buy to feed their families, such as loaves of bread, gallons of milk, cans of tuna and cheese.
“Since the incentive checks were done last year, there has been some benefit to some of these people who are eroding overtime and as we look at the rest of the time, this is something that is on our minds,” he said.
Shares of Walmart closed at $ 148.21 on Monday. The stock has risen about 2.5% so far this year, surpassing wider market performance as investors look for commodities in the midst of financial uncertainty. The company’s capitalization is nearly $ 408 billion.
Read the company’s profit announcement here.
Walmart Profits (WMT) 1st quarter 2023
Source link Walmart Profits (WMT) 1st quarter 2023