Dive Brief:
- Walmart on Tuesday reported comparable sales were up 8.3% and e-commerce sales grew 17% in the U.S. in the fourth quarter. Total global revenue for the quarter was up 7.3% to $164 billion, while revenue for the full year rose 6.7% to $611.3 billion.
- The company said its Q4 consolidated operating income was $5.6 billion, a decrease of 5.5%, while Q4 adjusted operating income was $6.4 billion, an increase of 6.9%. Gross profit rate declined 83 basis points, due to markdowns and mix of sales.
- For 2023, Walmart expects consolidated net sales to increase between 2.5% and 3%, and for U.S. comp sales to increase between 2% and 2.5%.
Dive Insight:
Walmart pushed through inflation and supply chain-related challenges in the fourth quarter, retaining its leading financial position as one of America’s top retailers. In a statement, CEO Doug McMillon praised the company's quick response to inventory and cost challenges last year.
“For fiscal ‘23, we added $38 billion in sales globally and we crossed $600 billion in revenue for the first time in our company’s history. Globally, e-commerce now represents more than $80 billion in sales and over 13% of our total sales,” and Walmart U.S. grew sales by more than $27 billion, McMillon said on a Tuesday morning earnings call.
Analyst Neil Saunders of GlobalData said in emailed comments that “Walmart has ended its year with a powerful set of numbers that show despite economic and competitive pressure, it remains the leader of the pack in retail.” At the same time, Saunders noted, “a lot of Walmart’s solid results are a consequence of inflation – especially in grocery and consumables where comparable sales are up in the mid-teens range. This has proved something of a double-edged sword as, while it flatters revenue numbers, it is less helpful to the bottom line where operating profit declined by 5.5% overall and grew by a relatively modest 3.8% in the US.”
The company also offered guarded guidance for 2023. Chief Financial Officer John David Rainey said during the call Walmart expects operating income growth to outpace sales growth. However, “given the persistence of high prices and the potential for further macro pressures, we are taking a cautious outlook for the year.”
Saunders said Walmart can cope with inflationary pressures better than other retailers due to the company’s enormous buying power. “It is also benefitting from an influx of new customers, including those at the higher end of the income spectrum, who are seeking lower prices and strong value for money,” he said. Those attributes set Walmart apart from its rivals.
Rainey said Walmart’s comp sales were strong in Q4 “and December was the largest sales month in Walmart US history.” That was led by strong performance in food sales which increased in the high teens offset by a mid-single-digit decline in general merchandise sales. Rainey said there was softness in toys, electronics, home and apparel.
“The effects of product mix shifts have negatively impacted our margins,” Rainey said. “Over the last year, grocery and health and wellness sales, which have a lower margin than general merchandise, have increased by 330 basis points as a portion of our mix.”
Rainey also said Walmart continues to see strong share gains in the grocery segment with nearly half of those gains coming from higher-income households. In addition, over the last two years, Rainey said store-fulfilled delivery sales “nearly tripled” to over $1 billion monthly.
But Walmart won’t be able to rely on food inflation as a long-term or ongoing sales driver, according to Saunders.
“The problem with Walmart in general merchandise is that it acts and thinks like a grocery player – merchandising in a very functional fashion with little to no flair. This is not enticing or appealing to many shoppers and makes assortments seem uninteresting, which reduces conversion and purchasing rates,” Saunders said.
He said the company recognizes this issue and in response, is remodeling stores and should focus on elevating visual merchandising, which in turn, can encourage shoppers to browse longer, which can then drive up sales.
“This may be difficult to justify in the present sluggish environment, but we also see it as a critical element of long-term success – including attracting more younger shoppers,” Saunders said.
