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Inflation Reminding Shoppers of Walmart’s ‘Value’, CEO Says

Despite a better-than-expected fourth quarter that helped Walmart Inc. top $600 billion in annual sales for the first time, the mass retailer expects apparel and home good sales won’t fare well this year.

In a Nutshell: “We currently expect sales growth to be strongest in the first half, then moderating in the second half reflecting our macro assumptions and more difficult year over year comparisons,” John David Rainey, Walmart’s executive vice president and chief financial officer, said during Tuesday morning’s conference call.

Guidance “assumes product mix pressures [that] persist,” Rainey said in a nod to consumer shopping trends leaning into food and consumables, and less on general merchandise categories such as apparel and homewares.

Fourth quarter results were led by strength in food sales, partially offset by a mid-single-digit decline in general merchandise sales such as toys, home and apparel. And while product mix shifts have negatively impacted Walmart’s margins, Rainey said the retailer got nearly half of its sales from higher-income households, while private brand sales also performed well.

John Furner, president and CEO of Walmart U.S., said that in the fourth quarter, the company saw an “acceleration” to more private brands versus branded product. “That shift really began last March and continued all year. In the fourth quarter, it got a bit stronger,” he said.

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Prices remain a concern, however.

“While the supply chain issues have largely abated, prices are still high and there is considerable pressure on the consumer attempting to predict with precision these swings and macroeconomic conditions,” Rainey said. Because of the macroeconomic uncertainty and its effect on consumer behavior, Walmart expects that higher prices spell trouble for the foreseeable future.

Recent supply chain and tech investments have nearly tripled store-fulfilled sales over the last two years. “We’re now doing over a billion dollars a month,” Rainey said.

Walmart ended the year with inventory flat to year-ago levels. The increase last year came from late deliveries and pushed items meant for holiday 2021 in February and March. While Furner said Walmart has worked through much of that backlog, there are still “pockets of inventory in stores and some fulfillment centers, and some categories like apparel, where there’s still more work to be done,” which will be a focus for the next few months.

Looking ahead, CEO Doug McMillon said the past two quarters showed that Walmart “acted quickly and aggressively to address the inventory and cost challenges we faced last year. We built momentum in the third quarter, and that continues. We’re well positioned to start this fiscal year.”

Among the highlights he noted was the addition of $38 billion in global sales that pushed annual revenue to over $600 billion “for the first time in our company’s history,” helped by more than $80 billion in sales and over 13 percent of total sales from global e-commerce. Walmart U.S. grew sales by more than $27 billion, and international sales and profits rose 9 percent. Sam’s Club, which plans to add 30 new U.S. stores, grew sales by more than $10 billion.

“If the economy is strong, our customers have more money and that’s great. If things are tougher they come to us for value,” McMillon told investors. “With today’s inflation, we’re continuing to see that happen. We’re gaining share across income cohorts, including at the higher end, which made up nearly half of the gains we saw in the US again this quarter. And we’re also capturing a greater share of wallet at Sam’s Club in the US with both mid- and higher-income shoppers.”

McMillon wants Walmart to invest such that people continue shopping the retailer’s many channels “even as inflation eventually subsides.”

Walmart will stay focused on general merchandise and “earn sales in those categories to offset” inflation’s impact. “We’re improving in categories like apparel and home,” McMillon pointed out.

Net Sales: Total revenue for the fourth quarter rose 7.3 percent to $164.0 billion. U.S. comparable sales rose 8.3 percent, while U.S. e-commerce grew 18 percent.

Walmart said Sam’s Club saw comp sales increase 12.1 percent, helped by a 7.1 percent membership income gain as member count rose to al all-time high. Walmart International net sales rose 2.1 percent to $27.6 billion, helped by gains in the discounter’s Walmex, China and Canada businesses.

Judith McKenna, president and CEO of Walmart International, said global consumers increasingly use digital and prefer more affordable private brands. One example she cited was China, where e-commerce growth is now reaching 48 percent. “We continue to see that as a key part of economic behavior,” McKenna said.

For the year, total revenue was up 6.7 percent to $611.3 billion. U.S. comp sales rose 6.6 percent, while U.S. e-commerce sales grew 12 percent. Walmart International sales were flat for the year. The discounter said Sam’s Club comp sales rose 10.5 percent for the year.

Earnings: Walmart said earnings per share (EPS) for the quarter was $2.32, with adjusted EPS of $1.71.

Wall Street was expecting adjusted EPS of $1.51 on revenues of $159.76 billion.

For the first quarter, Walmart guided net sales to be up 4.5 percent to 5.0 percent, at constant currency, with adjusted EPS at $1.25 to $1.30 a share.

For the full year, net sales was forecasted to rise 2.5 percent to 3.0 percent at constant currency. Walmart U.S. comp sales were projected to rise 2.0 percent to 2.5 percent. Walmart international sales at up 6.0 percent, at constant currency. Adjusted EPS for the year was forecasted at between $5.90 to $6.05.

For the year, EPS was $4.27, while adjusted EPS was $6.29.

CEO’s Take: “We’re now positioned to serve the customer how they’d like to be served—stronger on convenience as well as being known for value,” McMillon told Wall Street analysts. “The business model is changing. Some of the things we’ve been working on for these last few years are starting to scale and we’re excited about that.”