Walmart Inc. has lifted its outlook once again after surprising Wall Street with earnings better than expected. The Retailer, however, signaled that global supply chain logjams and rising inflation are taking their toll.
The company’s gross margins, a broad indicator for profitability, fell in the third quarter, according to its earnings statement on Tuesday. CEO Doug McMillon has accepted that Walmart needs to mitigate Walmart’s rising prices and according to him, “fighting inflation is in our DNA.”
McMillon’s statement underscored the confidence in Walmart as the company navigates labor squeeze, transportation capacity issues, and rising fuel prices as crucial factors that have combined to give the U.S. the fastest rise in consumer prices in three decades. This indicates an upbeat prospect for the coming holiday shopping season despite the expected drag on profits due to rising inflation.
In a note to its clients, analyst Simeon Gutman of Morgan Stanley said,” margins are squishy and will be picked at though sales are strong and better than expected.“
Share prices fell to $144.39 at 9.56 a.m. Tuesday in New York, down by 1.7% and wiped out the gains made by Walmart for the year. Till Monday, Walmart had gained 1.9% for this year. Compared to other food and staples retailers who had grown 18%, this was the worst performance. Target Corp. has surged 50% for the year, and results will be out Wednesday.
Customers are not shying away from in-house shopping despite the challenges thrown by covid outbreaks and others. This has allowed Walmart to gain market share, as per McMillon.
As per its earlier forecast of 5% sales growth, Walmart U.S. stores are expected to grow at 6%, excluding fuel.
Comparable Gains
As per Bloomberg analysts’ estimates of 7% average sales growth of Walmart U.S. stores, the third quarter surpassed it to 9.2%. The adjusted earnings also exceeded expectations.
In the third quarter customers bought more items despite paying more for the goods. Transactions rose by 5.7%, and average ticket size increased by 3.3 %, reflecting the consumer sector’s inflations.
According to Neil Saunders, Global Data Managing Director, Walmart has shown a healthy uptick in sales after two quiet quarters. He said that Walmart would benefit from inflation as it is known for its low-price strategy. Rising inflations will force Americans to turn to Walmart in order to save money.
