Walmart: provides update for second quarter and fiscal year 2023

Bentonville / AR. (wama) Walmart Inc. provided a business update and revised its outlook for profit 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 percent 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 president and CEO Doug McMillon.

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 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 currency of about USD 1 billion in the second quarter. Based on current exchange rates, the company expects a USD 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 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 is expected to decline around 8 to 9 percent and 11 to 13 percent, respectively. Excluding divestitures, adjusted earnings per share for the full year is expected to decline 10 to 12 percent.

The company completed the sale of its operations in the U.K. and Japan in the first quarter of fiscal 2022. 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 USD 173 million and adjusted earnings per share by USD 0.05
  • Proceeds from a special dividend received by the company related to its equity investment in JD.com, which positively affects other gains and losses by USD 182 million and adjusted earnings per share by USD 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.

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