Company lowers profit outlook for Q2 and FY23
Operating margin expected to be about 4.2% for Q2 and 3.8% to 3.9% for FY23
Outlook for net sales higher for FY23 given Q2 results, elevated by inflation
Walmart Inc. (NYSE: WMT) provided a business update today and revised its outlook for profit for the second-quarter and full-year, primarily due to pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S. and mix of sales.
Comp sales for Walmart U.S., excluding fuel, are expected to be about 6% for the second quarter. This is higher than previously expected with a heavier mix of food and consumables, which is negatively affecting gross margin rate. Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel. During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers. Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery.
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” said Doug McMillon, Walmart Inc. president and chief executive officer.
Guidance Updates
Based on the current environment and the company’s outlook for the remainder of the year, it is providing the following updates to its guidance.
- Consolidated net sales growth for the second quarter and full year is expected to be about 7.5% and 4.5%, respectively. Excluding divestitures1, consolidated net sales growth for the full year is expected to be about 5.5%.
- Net sales include a headwind from currency of about $1 billion in the second quarter. Based on current exchange rates, the company expects a $1.8 billion headwind in the second half of the year.
- The company maintains its expectations for Walmart U.S. comp sales growth, excluding fuel, of about 3% in the back half of the year.
- Operating income for the second-quarter and full-year2,3 is expected to decline 13 to 14% and 11 to 13%, respectively. Excluding divestitures1, operating income for the full year2 is expected to decline 10 to 12%.
- Adjusted earnings per share4 for the second quarter and full year is expected to decline around 8 to 9% and 11 to 13%, respectively. Excluding divestitures1, adjusted earnings per share4 for the full year is expected to decline 10 to 12%.
The company’s updated guidance includes the effects of the following discrete items in the second quarter:
- Proceeds from an insurance settlement for Walmart Chile, which positively affects operating income by $173 million and adjusted earnings per share by $0.05
- Proceeds from a special dividend received by the company related to its equity investment in JD.com, which positively affects other gains and losses by $182 million and adjusted earnings per share by $0.05
- The company will provide further details on business performance and its outlook for the year when it reports second-quarter results on Aug. 16, 2022.
About Walmart
Walmart Inc. (NYSE: WMT) helps people around the world save money and live better — anytime and anywhere — in retail stores, online, and through their mobile devices. Each week, approximately 230 million customers and members visit more than 10,500 stores and numerous eCommerce websites under 46 banners in 24 countries. With fiscal year 2022 revenue of $573 billion, Walmart employs approximately 2.3 million associates worldwide. Walmart continues to be a leader in sustainability, corporate philanthropy and employment opportunity. Additional information about Walmart can be found by visiting corporate.walmart.com, on Facebook at facebook.com/walmart and on Twitter at twitter.com/walmart.
1The company completed the sale of its operations in the U.K. and Japan in the first quarter of fiscal 2022.
2Growth rates reflect an adjusted basis for prior year results, which excludes business restructuring charges in the fourth quarter of fiscal 2022.
3Based on current foreign exchange translation rates, operating income includes estimated negative impacts of about $60 million and $100 million for the second quarter and fiscal 2023, respectively.
4Growth rates reflect an adjusted basis for prior year results, which exclude gains and losses on the Company’s equity investments, business restructuring charges, loss on extinguishment of debt recorded during the third quarter of fiscal 2022 and the incremental loss on the sale of the Company’s operations in the U.K. and Japan recorded during the first quarter of fiscal 2022.