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Walmart CEO on Sales Growth Despite Inflation: ‘I Just Feel Good About the Momentum of the Business’

Walmart Inc.‘s fourth quarter results showed the retailer can navigate inflation as it looks to take more costs out and pass savings along to consumers.

In a Nutshell: “I just feel good about the momentum of the business,” chairman and CEO Doug McMillan told analysts during a conference call Thursday, adding, “I’m as optimistic as I’ve ever been about the business model.”

McMillan added, “Going into the quarter, we were confident that we had the people the products and the prices to deliver and we did.” He said that food consumables and apparel were also strong globally.

Walmart U.S. worked closely with suppliers to manage inflation, and even found places where it was able to roll back prices, he said. “If you look at growth since the beginning of Fiscal21 through the end of Fiscal22, excluding divestitures, our company is about 17 percent larger in terms of revenue, 31 percent larger in terms of operating income, and globally, a percentage of digital sales grew from 6 percent to 13 percent,” McMillon added.

Walmart increased pickup and delivery capacity by nearly 20 percent last year, and expects to increase capacity by another 35 percent this year. For Walmart’s InHome delivery, the membership service is available to about 30 million U.S. homes, up from 6 million. It is also building a fleet of all-electric vans to support its delivery services, and set a goal of a zero emissions from the logistics fleet by 2040.

Walmart added more than 20,000 new marketplace sellers in the U.S. last year and expects to add nearly 40,000 more this year. Total marketplace SKUs reached nearly 170 million and McMillon said Walmart continues to add more daily.

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“We recently launched Walmart Go Local, a last-mile delivery solution using our Spark Driver platform to help businesses of all sizes reach more customers. Go Local is making deliveries for the Home Depot and other large retailers. I’m most excited about serving small local retailers,” McMillon said, adding it aims to expand its nearly 1,000 Go Local service pickup points to closer to 5,000 this year. “This is good for customers, our clients and for us as we lower the cost per order by increasing the combined order size.”

Stores are increasingly taking on a hybrid role. “They’re both stores and fulfillment centers. Last year we increased the number of orders coming from our stores by 170 percent versus the previous year, and that’s on top of more than 500 percent from the year before. Having inventory so close to customers is a competitive advantage because it means Walmart can get orders out to customers in hours rather than days,” McMillon said.

Net Sales: Total fourth quarter revenues rose 0.5 percent to $152.9 billion from $152.1 billion, negatively impacted by $10.2 billion due to divestitures.

Walmart U.S. posted strong sales—up $5.7 percent to $105.3 billion—reflecting market share gains in grocery, while e-commerce sales grew 1 percent from a year ago and was up 70 percent on a two-year basis. Comparable sales for the quarter were 5.6 percent. Apparel performed well during the quarter.

Walmart International reported net sales of $27.0 million, down 22.6 percent due to a negative impact from divestitures. Sales in China, Mexico and through Indian platform Flipkart delivered strong growth.

Sales at Sam’s Club rose 10.4 percent from a year ago, or 21.2 percent higher than two years ago. Membership income rose 9.1 percent.

Total revenue for the year was up 2.4 percent to $572.8 billion from $559.2 billion, including a negative impact of $32.7 billion due to divestitures. For the year, Walmart U.S. sales rose 6.3 percent to $393.2 billion from $370.0 billion. Walmart U.S. comp sales rose 6.4 percent and 15.0 percent on a two-year basis. Walmart’s U.S. e-commerce sales rose 11.0 percent for the year, and 90 percent on a two-year basis. Walmart International sales fell 16.8 percent, negatively impacted by $32.6 billion related to divestitures.

Earnings: The company said earnings per share (EPS) for the quarter totaled $1.28 a diluted share, with adjusted diluted EPS at $1.53.

Wall Street expected adjusted diluted EPS at $1.50 on revenue of $151.53 billion.

For Fiscal 2023, the company expects consolidated net sales growth of 3 percent in constant currency, with Walmart U.S. comp sales growth of 3 percent, also in constant currency. EPS growth was projected to increase in the mid single-digits. The company also said it expects capital expenditures in the upper end of 2.5 percent to 3.0 percent of net sales, with funds used to focus on supply chain, automation, customer-facing initiatives and technology.

For the year, diluted EPS was $4.87, with adjusted diluted EPS at $6.46. CFO Brett Biggs said supply chain costs were over $400 million higher than expected and that while Covid costs were lower than last year, the company also saw higher-than-expected labor costs in the U.S..

Walmart said it navigated higher supply chain costs and pandemic-related challenges well in the quarter, while executing on strategic initiatives.

CEO’s Take: “As we start this year, I think it’s clear that we’re changing to serve customers and members in the way that they want to be served and having stores and e-commerce business, pickup, delivery, fulfillment centers and marketplace. All of those things are helpful as it relates to that. And the great thing about it is the way that we’re building these is that the company can grow earnings and grow the bottom line while we’re doing it. The business model changes and it enables the customer member to benefit and our business to benefit at the same time. So I’m excited about the short-term momentum and looking forward to the year,” McMillon said.