Walmart is selling better than expected, despite high fuel prices, inflation and supply chain issues. Still, the American retail giant is left with large stock piles, which continue to pile up.
Consumers watch their pennies
In the quarter to the end of April, Walmart recorded 141.57 billion dollars (134.79 billion euros) in sales compared to 138.31 billion dollars (131.52 billion euros) a year earlier. A windfall, because analysts barely expected more turnover than last year. Consumers went back to the shops, but mainly bought price-conscious and cheaper food products. Large packs of milk, for example, were a particular favourite during the quarter.
However, price-conscious buying behaviour weighs on margins. Net profit fell to 2.05 billion dollars (1.95 billion euros) compared to 2.73 billion dollars a year ago. That is a lot less than analysts expected. As with other retailers, e-commerce growth was somewhat stagnant after the peak during the Covid pandemic: online sales increased by only 1%, although that was 38% more than at the beginning of 2020.
One-third more inventory
Walmart is currently gaining market share in the grocery category, but suffers from high inventory levels in other categories. Supply chain constraints and high inflation have prompted the retail group to increase its purchasing volume, in order to avoid empty shelves and sharp price increases, but it now holds over one third more stock.
Some products also arrived late or lingered in warehouses, while spring sales of outdoor items were disappointing due to bad weather in the US. As a result, many seasonal items remained unsold and Walmart had to implement discounts or price reductions, including on clothing. Nevertheless, CFO Brett Biggs believes the retailer will get rid of those inventories when the weather improves. He sees the second quarter starting well already, according to CNBC.
Throughout the year, Walmart plans to focus on low prices and the discount segment, as inflation and fuel prices make life expensive for many consumers. “Price leadership is especially important now and one-stop shopping is becoming more than just convenience,” says CEO Doug McMillon. The chief executive is paying particular attention to low-cost food products, although it will be a balancing act to ensure low prices without allowing profits to slide further.