Walmart eked out unexpectedly better sales in its holiday quarter and delivered an upbeat outlook, as the retailer known for price “rollbacks” navigated shipping logjams and surging inflation.
The Arkansas-based retailer predicted net sales for the current financial year will rise “about” 3 per cent in constant currency measures, the company said on Thursday, ahead of analysts’ estimates.
Walmart forecast earnings per share to increase at a “mid single-digit” rate. Excluding divestitures, that rise will be between 5 and 6 per cent. Its guidance for the current financial year is “in line” with what it outlined a year ago.
The upbeat outlook accompanied better than expected quarterly results in the crucial holiday quarter as Walmart said it “navigated higher supply chain costs and pandemic-related challenges well”.
The retail sector has come under pressure from supply chain bottlenecks and labour shortages that are pushing up the cost of getting merchandise on to shelves, from shipping fees to store wages. Surging prices, alongside falling confidence in the government’s economic policies, have driven US consumer sentiment to its worst level in a decade.
Still, Walmart’s total revenue hit $152.9bn in the three months to the end of January, an unexpected 0.5 per cent increase year on year and edging higher than analysts’ median estimates for $151.5bn. On a comparable basis, fourth-quarter sales at Walmart’s US stores were up 5.6 per cent, helped by robust demand in the food, apparel, automotive and health categories.
The results suggest Americans feeling squeezed by inflation continue to seek out deals at Walmart and the members-only warehouse chain Sam’s Club, whose comparable sales were up 10.4 per cent in the holiday period.
While some of the world’s largest consumer brands have passed rapidly rising costs on to their customers to protect their profit margins, John Furner, head of Walmart US, said stores were offering roughly the same number of price rollbacks as they did at the end of the first quarter last year.
“So, while we have supply chain challenges and other costs coming through, the teams are doing a nice job managing mix and pricing,” Furner said on the company’s earnings call.
Arun Sundaram, an analyst at CFRA Research, said Walmart’s momentum will continue this year “as consumers likely become increasingly price conscious, with inflation being at a 40-year high”. The average price gap between Walmart and the competition “continues to widen versus pre-pandemic levels”, Sundaram added.
Walmart executives also said port congestion has eased and the company’s US inventory grew about 28 per cent in the quarter, but some of the added costs tied to supply chains and higher wages will probably continue for part of this year.
Despite those supply chain pressures, the company recorded wider profit margins in the US, underpinned by growth in Walmart’s advertising business. Its overall gross profit rate rose 10 basis points to 23.8 per cent, while margins for Walmart US rose 54 basis points.
Walmart has generated strong sales throughout the pandemic, as Americans turned to big-box stores that offer a wide range of merchandise and sought out groceries, cleaning supplies and housewares online.
While ecommerce growth has cooled, more shoppers are returning to brick-and-mortar stores with concerns over the spread of coronavirus easing. Walmart’s US ecommerce sales rose just 1 per cent year on year last quarter, compared with 70 per cent growth over the past two years.
Walmart plans to buy back at least $10bn of shares in the current financial year, it said on Thursday.
Its shares picked up 1.9 per cent in morning trading in New York.