In a business update, Walmart provided a revised outlook for the fiscal second quarter and full year as it takes pricing actions to improve inventory levels at Walmart and Sam’s Club stores in the United States.
The company expects comparable sales for Walmart U.S., excluding fuel, to come in at about 6% for the second quarter. The number is higher than previously anticipated as Walmart has been experiencing a heavier mix of food and consumables sales that, while boosting revenue, is negatively affecting gross margin rate. Food inflation stands in double digits and higher than at the end of the first quarter, affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel, Walmart noted.
In the quarter, the company has made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a shipping container backlog, it maintained, adding that consumers are choosing Walmart to save money during this inflationary period allowing it to make market share gains in grocery.
Based on the current sales environment and the company’s outlook for the remainder of the year, Walmart now expects:
- Consolidated net sales growth for the second quarter and full year to be about 7.5% and 4.5%, respectively.
- Consolidated net sales growth for the full year to be about 5.5%, divestitures excluded.
- Net sales headwinds from currency of about $1 billion in the second quarter and $1.8 billion in the second half of the year.
- Comp sales growth, excluding fuel, of about 3% in the back half of the year.
- Operating income for the second quarter and full year to decline 13% to 14% and 11% to 13%, respectively with full-year operating income decreasing 10% to 12% excluding divestitures
- Adjusted earnings per share for the second quarter and full year to decline 8% to 9% and 11% to 13%, respectively, with full-year adjusted earnings per share decreasing 10% to 12% in the full year excluding divestitures.
Walmart anticipates completing the divestitures of its operations in the United Kingdom and Japan. Walmart pointed out that it expects proceeds from an insurance settlement for Walmart Chile to positively affect operating income by $173 million and adjusted earnings per share by five cents as proceeds from a special dividend received by the company related to its equity investment in JD.com positively affects other gains and losses by $182 million and adjusted earnings per share by five cents.
Walmart reports second-quarter results on August 16.
“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 CEO, in announcing the outlook updates.
