Walmart, Inc. provided a business update and revised outlook for profit for the second quarter and full year, primarily due to pricing actions aimed to improve inventory levels and sales at U.S.-based Walmart and Sam’s Clubs. 

Comp sales for Walmart U.S., excluding fuel, are expected to be about 6 percent for the second quarter, higher than previously expected, with a heavier mix of food and consumables, negatively affecting the gross margin rate. Food inflation is double-digits and higher than at the end of Q1, affecting the consumer’s ability to spend on general merchandise categories and requiring more markdowns to move through inventory, particularly apparel. 

During the quarter, Walmart reduced inventory, managed prices to reflect certain supply chain costs and inflation, and reduced storage costs associated with a backlog of shipping containers. Customers choose Walmart to save money, reflected in its market share gains in grocery.

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

Guidance Updates
Based on the current environment and the company’s outlook for the remainder of the year, Walmart provided the following update to its guidance:

  • Consolidated net sales growth for the second quarter and full year are expected to be about 7.5 percent and 4.5 percent, respectively.
  • Excluding divestitures, consolidated net sales growth for the full year is expected to be about 5.5 percent.
  • Net sales include a headwind from the 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’s U.S. comp sales growth, excluding fuel, of about 3 percent in the back half of the year.
  • Operating income for the second quarter and full year is expected to decline 13-to-14 percent and 11-to-13 percent, respectively.
  • Excluding divestitures, operating income for the full year is expected to decline 10 to 12 percent.
  • Adjusted earnings per share for the second quarter and full year are expected to decline around 8-to-9 percent and 11-to-13 percent, respectively. 
  • Excluding divestitures, adjusted earnings per share for the full year are expected to decline 10-to-12 percent.

Walmart’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 JD.com, which positively affected 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 August 16, 2022.

Logo courtesy Walmart