Walmart Warns of Lower Profits

Walmart, the nation’s largest retailer, warned of lower profits for the second-quarter and full-year, primarily due to pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S. and mix of sales.

Comp sales for Walmart U.S., excluding fuel, are expected to be about 6% for the second quarter. This is higher than previously expected with a heavier mix of food and consumables, which is negatively affecting gross margin rate. Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel. During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers. Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” said Doug McMillon, Walmart Inc. president and chief executive officer.

Walmart operates over 10,500 stores under the Walmart and Sam’s Club names.

Guidance Updates

Based on the current environment and the company’s outlook for the remainder of the year, it is providing the following updates to its guidance.

  • Consolidated net sales growth for the second quarter and full year is expected to be about 7.5% and 4.5%, respectively. Excluding divestitures1, consolidated net sales growth for the full year is expected to be about 5.5%.
  • Net sales include a headwind from currency of about $1 billion in the second quarter. Based on current exchange rates, the company expects a $1.8 billion headwind in the second half of the year.
  • The company maintains its expectations for Walmart U.S. comp sales growth, excluding fuel, of about 3% in the back half of the year.
  • Operating income for the second-quarter and full-year is expected to decline 13 to 14% and 11 to 13%, respectively. Excluding divestitures1, operating income for the full year is expected to decline 10 to 12%.
  • Adjusted earnings per share for the second quarter and full year is expected to decline around 8 to 9% and 11 to 13%, respectively. Excluding divestitures, adjusted earnings per share for the full year is expected to decline 10 to 12%.

The company’s updated guidance includes the effects of the following discrete items in the second quarter:

  • Proceeds from an insurance settlement for Walmart Chile, which positively affects operating income by $173 million and adjusted earnings per share by $0.05
  • Proceeds from a special dividend received by the company related to its equity investment in, which positively affects other gains and losses by $182 million and adjusted earnings per share by $0.05
  • The company will provide further details on business performance and its outlook for the year when it reports second-quarter results on Aug. 16, 2022.