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Walmart Hoarding Inventory Heading Into Holidays

Inventory is up 11.5 percent at Walmart Inc. heading into the holidays as the retailer’s third-quarter results beat Wall Street earnings and revenue estimates.

In a Nutshell: The Bentonville, Ark.-based company has leaned on its size and scale to retain its dominance amid disruption. “I think the big advantage that Walmart has in times like this is about two-thirds of what we source is sourced from the United States,” chief financial officer Brett Biggs told Wall Street analysts on a call Tuesday. This flexibility gives Walmart the agility to balance out cost and inflationary pressures, he added.

The retailer is working with truck drivers, merchants and replenishment teams to move inventory through the supply chain and manage inflation. “We have lots of variables to manage to deliver everyday low prices to customers, and simultaneously strong financial results for our shareholders,” CEO Doug McMillon said.

Regardless, McMillion believes Walmart can take advantage of both deflationary and inflationary environments. “Our cost inflation is higher than our retail inflation and that’s what we would want. But we’ve got lots of flexibility as we monitor price gaps to decide what we do with general merchandise,” he said. “We would care a little less about how the gross margin SGA (selling, general and administrative costs) balance out as we would with what the net looks like and so we’re managing in that fashion and that’s what you can expect us to do going forward.”

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Biggs said higher spending levels, a 5.7 percent bump in traffic and strength in discretionary categories like apparel were some of Q3’s “encouraging” signs.

With double the fulfillment capacity versus last year and more than 1,000 last-mile delivery hubs, McMillon believes the retailer is positioned for success during the pivotal peak season. “Customers and members are shopping with us across channels, and we’re making it easier for them. Speed matters. That’s why we offer fast same-day delivery to millions of customers around the world,” he said.

Walmart is looking to cement its position as a price leader, according to Biggs.

“We’re out there asking suppliers, ‘Do any of you want to get aggressive and swim upstream and take prices down while prices are going up to gain share?’” he said.

Meanwhile, the company is focused on diversifying itself as a serious player in third-party delivery services. McMillon pointed to GoLocal’s last-mile offering and the white-label Spark Driver platform, a Walmart-Sam’s Club-Home Depot partnership. “The technology behind it is now available in Mexico as we learn to build more digital products that can be leveraged globally,” he said. “Spark continues to grow and is now active in 900 U.S. cities, providing access to more than 50 percent of U.S. households, and we’re just getting started.”

Selling ads is another area of focus “because it helps suppliers and marketplace providers sell more, while creating a new opportunity for us,” McMillon said, adding that the U.S., Flipkart and Mexico are driving “rapid growth and advertising income.”

Earlier in the quarter, the company launched Walmart Luminate in the U.S., giving merchants and suppliers a suite of data products revealing actionable category and items.

Though stimulus checks have helped prop up retail sales this year, Biggs said the end of these payments actually paid off on some fronts. “When the stimulus dollars started to go away, the hiring situation changed faster,” he said, noting that Walmart has add “close to 200,000” employees in the supply chain and in stores. “We saw people come back [to work] in a matter of weeks.”

Walmart is preparing for whatever lies ahead. “We’re working on the things underneath that will enable us to continue to grow regardless of what the environment’s like,” McMillon said. “We run the company for the long term and manage it for the short term.”

Net Sales: Total revenues for the quarter ended Oct. 29 rose 4.3 percent to $140.5 billion. Revenue income included a 4.1 percent increase in net sales to $139.2 billion.

Walmart U.S. sales rose 9.3 percent to $96.6 billion, while comp sales grew 9.2 percent and 15.6 percent on a two-year basis. Walmart’s membership income rose 37.9 percent to $1.3 billion, while U.S. e-commerce sales rose 8 percent for the quarter and 87 percent over 2019. For the general merchandise category, comp sales climbed in the mid-single digits. Apparel, back-to-school, and seasonal holiday décor performed well.

Walmart International sales fell 20.1 percent to $23.6 billion on $9.4 billion in divestitures. The company said Flipkart, China and Mexico delivered strong e-commerce sales growth. Sales at Sam’s Club grew 13.9 percent, excluding fuel, and were up 25 percent on a two-year basis. E-commerce sales for the warehouse membership club grew 32 percent, while membership income rose 11.4 percent, representing the fifth consecutive quarter of double-digit growth. For home and apparel, comp sales were up in the high-teens, with strength in seasonal, tires, toys, furniture and domestics.

Walmart U.S. inventory “increased 11.5 percent in preparation for what we expectation to be a strong holiday season,” Biggs said.

Net Earnings: Operating income rose 0.2 percent to $5.8 billion, and EPS totaled $1.11. On an adjusted basis, earnings per share (EPS) was $1.45.

Wall Street expected adjusted diluted EPS of $1.40 on revenues of $135.6 billon.

For the fourth quarter, the company expects Walmart U.S. comp sales of around 5 percent.

The company raised full-year guidance and now expects Fiscal Year 2022 EPS in the range of $5.00 a share, or adjusted EPS of $6.40. The prior guidance for adjusted EPS was between $6.20 to $6.35. Walmart guided comparable sales to up 6 percent, excluding fuel.

CEO’s Take: “We continue to have momentum. Sales were strong throughout the third quarter can we’ve seen a good start to the fourth quarter,” McMillon said. “We have the people, the products and the prices to deliver a great holiday season around the world.”

Additional reporting by Jessica Binns.