Walmart Earnings Take Hit From Wage Increases, Inflation and Supply Chain Costs

Walmart shares are down following a disappointing earnings report from the big-box retailer this morning.

Walmart missed earnings expectations for Q1, reporting adjusted earnings per share of $1.30 compared to an expected $1.48. The company beat sales expectations with reported revenues of $141.57 billion compared to the $138.94 billion expected from analysts.

Walmart shares were down 8.5% as of Tuesday morning.

The earnings miss, according to executives, was a result of increased wage expenses and fuel costs in the supply chain, as well as a decrease in general merchandise sales due to inflation. With commodities like food and gas up so high, Walmart said consumers were spending less in general merchandise categories like apparel, which contributed to higher levels of inventory than desired.

Consumer prices rose by 8.3% in April compared to a year ago, according to the Bureau of Labor Statistics’ monthly report. Specifically, the food index rose 9.4%, marking the largest 12-month increase since the period ending April 1981.

Walmart said it plans to roll back prices on certain items, like apparel, to keep inventory flowing. According to CEO Doug McMillon, these rollbacks will help win over consumers that have generally become accustomed to higher prices across multiple categories.

“Customers are even more price sensitive right now,” said McMillon in a call with investors. “So when you bring something down in sporting goods or hardware, one of these other categories, they notice even more than they would notice before, and that makes the elasticity impact different than it would be otherwise.”

These rollbacks will help ease the impacts of inflation across food, a category in which consumers have little choice but to absorb higher prices.

In addition to inflation, Walmart also faced rising labor costs in Q1. Multiple employees returned to work as the Omicron variant subsided, after Walmart had already hired more employees to make up for these absences. In March, for instance, Walmart said it planned to hire more than 50,000 workers to staff its U.S. stores, offices and supply chain facilities in Q1.

As a result, the retail giant said it faced “weeks of overstaffing” and over-scheduling in Q1.

Rising fuel prices during February and March also ate into profits in Q1, Walmart said.

Despite the rough quarter, executives said they are confident the company can get back on track through the remainder of the year. As such, Walmart raised its sales outlook this year and expects net sales to increase about 4% for the full year in constant currency.

“It’s very difficult in an environment that’s had so many domain changes to manage the margins quarter-to-quarter,” said Walmart U.S. CEO and president John Furner. “Over the longer term, our team is very capable of managing this quarter, and we’ve done that for a long time, but not all the cost changes happen when the quarter begins and when the quarter ends.”

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