Holiday Season Will Be 'More Promotional Than Normal,' Says Walmart CEO
Walmart shares jumped Tuesday after Q3 FY 2023 revenue came in higher than expected at $152.8 billion, rising 8.7% vs. guidance of 5% in August (see Ref:2208160039]). Sharesclosed 6.5% higher Tuesday at $147.44.
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Walmart U.S. comparable sales rose 8.5% to $104.8 billion. The retailer raised its full-year outlook to net sales growth of 5.5% for the company overall and for Walmart U.S. It narrowed the adjusted operating income decline guidance to 6.5%-7.5% from prior guidance of 9%-11% due to Q3 performance. Currency exchange rates had a $1.5 billion impact on revenue in the quarter.
On a Tuesday earnings call, Chief Financial Officer John Rainey attributed better-than-expected results for the quarter ended Oct. 28 to market share gains, Walmart’s “value proposition” for consumers during periods of high inflation and its “extreme focus” on managing expenses, including working with vendors to reduce product costs.
CEO Doug McMillon noted share gains among consumers with household incomes over $100,000. During times when shoppers are more sensitive to price, if they come in for “Tide or bananas,” they're more likely to pick up other items to save money, he said, helping to grow Walmart’s share.
Commenting on the remainder of the holiday shopping season, McMillon said he expects it to be “more promotional than normal” and “late,” with Christmas falling on a Sunday. Walmart will be “watching sales closely up until the last minute of Christmas Eve, and then we’ll do a lot of business after Christmas,” he said. In some Q4s, “the very end of December and January end up being stronger when people are particularly price sensitive.”
In Q3, general merchandise sales fell low-single digits with softness in electronics, home and apparel, Rainey said. Transactions at Walmart U.S. were up 8.2% vs. 9.2% a year ago; average ticket grew 6% vs. 3.3%, reflecting inflation, it said. E-commerce sales increased 16%. Gross profit rate declined 77 basis points, due to higher markdowns and product mix headwinds, Rainey said. Consolidated gross margin rate decreased 89 basis points, with more than half due to markdowns and sales mix in the U.S.
The company was “targeted” when shedding certain categories of inventory, Rainey said, including canceling orders and stepping up the level of markdowns. Q3 inventory was up 12.4% vs. Q3 ’21, and down from over 26% at the end of Q2, said Walmart U.S. CEO John Furner. In Q1, most of the extra inventory was in supply chain; that balanced out to stores in Q2, Furner said. Stores “are still heavy,” he said, citing “about a billion” of excess, a third of excess inventory at the end of Q2.
General merchandise categories have “started to move as demand softens” and transportation costs change, McMillon said. Walmart will manage margins and a price gap in general merchandise “department by department and category by category” with “an eye towards leaning down while protecting profitability as much as we can."
Commenting on how consumer shopping patterns are shifting, Rainey referenced Walmart’s “changing business model” as an omnichannel retailer. “When you consider things like advertising or fulfillment services, these are areas of our business that not only are faster growing, they have a higher margin associated with them.” Looking ahead a couple of years, he said, “We’ve got a much more diverse and durable earnings stream.” McMillon added that management is sanguine about how Walmart’s Marketplace is scaling and how the company’s business units “connect to each other.”