Walmart, in kicking off its two-day 2023 investment community meeting, stated that it is investing to develop an unparalleled next-generation supply chain network of stores, clubs and fulfillment centers and driving future global growth opportunities across its omnichannel ecosystem.
Walmart emphasized the importance of the company’s associates in executing plans even as it detailed plans for a new more connected and automated supply chain. In the logistical network it is developing, Walmart asserted that it would improve the customer experience for customers and associates, and simultaneously increase productivity. The company stated that it is re-engineering the Walmart supply chain to fulfill customer needs with a more intelligent and connected omnichannel network enabled by greater use of data, more intelligent software and automation. In so doing, the company is improving in-stock, inventory accuracy and flow whether customers shop in stores, pick up, or schedule a delivery.
As an example of its innovation, Walmart provided a view of its Brooksville, FL, regional distribution center. The company characterized the facility as a factor in how it is building a scaled system of supply chain capabilities by combining data, software and robotics. Walmart used the Brooksville facility to illustrate how increased item storage allows the distribution center to provide a more consistent, predictable and higher-quality delivery service to stores and customers while reacting more quickly to customer demand.
Distribution and fulfillment centers hold a mix of items from Walmart suppliers and marketplace sellers. Stores operate as fulfillment centers and delivery stations themselves as well as a place to shop. This combination enables Walmart to use its existing assets more flexibly and efficiently for new ways of working, the company noted.
With all the supply chain elements operating in the execution of the company distribution strategy, Walmart believes that by the end of Fiscal Year 2026, automated processes will service roughly 65% of its stores, the company stated, adding that, as of that date, about 55% of the fulfillment center volume will move through automated facilities, and unit cost averages could improve by 20%.
As a result of the strategy, Walmart employees will be doing less physical labor at a higher rate of pay. Over time, the company anticipates that automation will increase throughput per person, even as it maintains or increases the number of workers it employs as new roles are created.
Walmart also discussed how the company is adapting its financial profile, centering on three key building blocks: sales growth from its omnichannel business model, diversifying earnings streams by refining category and business mix, and scaling proven, high-return investments that drive operating leverage and improve incremental operating margins. Walmart’s multi-year growth outlook assumes all three business segments will contribute to the company’s mid-single-digit sales growth target. Walmart is strengthening its global omnichannel ecosystem and scaling higher-margin value streams that serve customers and businesses, and act as natural connectors to its omnichannel retail business. Initiatives under that umbrella include those involving advertising, data, memberships and marketplace. In the larger sense, Walmart insisted, the company is moving to help deliver a better experience for customers overall and for participants in its membership program while driving stronger returns.
As part of its investment community meeting, Walmart provided guidance for current-quarter results including a consolidated net sales increase of 4.5% to 5% on a constant currency basis, a consolidated operating income increase of 3.5% to 4% on a constant currency basis, negatively impacted by 235 basis points from LIFO, and adjusted earnings per share of $1.25 to $1.30, including an expected three cent impact from LIFO.
“We are in a unique position to serve our customers and members however they want to shop, which will fuel continued growth,” said Doug McMillon, Walmart president and CEO, in announcing the distribution and financial plans. “As we grow, we will improve our operating margin through productivity advancements and our category and business mix, and drive returns through operating margin expansion and capital prioritization.”
John David Rainey, Walmart executive vp and CFO added, “We believe that we have the building blocks in place to help define the next chapter of retail and do so while driving strong growth and shareholder returns. Looking at where we are today, we believe that approximately 4% sales growth, and growing operating income at a faster rate, are still the appropriate targets for our business over the next 3-5 years. The investments we’ve made have positioned us well and stand to generate steady and sustained growth at higher margins. Achieving our targeted 4% sales growth over the next five years would add more than $130 billion of sales on top of our roughly $600 billion base today. On top of that, we think the opportunity for operating income growth over the next 3-5 years could be better than what we’ve outlined.
