Walmart is cancelling orders to help it right-size inventory excesses.
In a call with investors announcing results for the second quarter, Walmart CFO John Rainey said the company has “canceled billions in orders” to deal with inventory pileups that have amassed over the last few quarters.
The big-box store, like other retailers this quarter, has found itself with higher-than-usual levels of inventory as a result of delayed orders from Q1 and Q2 that have only recently arrived, compounding existing orders for the season. On top of that, consumers have drastically shifted spending away from discretionary categories, leaving Walmart with excesses in categories like apparel.
In addition to order cancellations, Walmart also resorted to markdowns in categories that were selling less. As such, Rainey estimates that only about 15% of Walmart’s inventory growth in Q2 was “above optimal levels.”
“We feel much better about the back half of the year,” said Walmart U.S. CEO and president John Furner. “We still have the inventory to work through and ingest from the backlogs, as we said. So we need a couple of quarters to do that.”
Furner said clearing out apparel excesses was “urgent” in Q2, given that some of these items are seasonal and will be less relevant once Q3 rolls around.
Other retailers have also reported higher-than-usual inventories in Q1 and Q2 for similar reasons. Target in June announced it was taking several steps in Q2 to move through inventory excesses, such as introducing markdowns, removing excess inventory, and canceling orders.
Overall, Walmart beat expectations for earnings and revenues in Q2, after it slashed its outlook for the quarter last month. The company reported adjusted earnings per share of $1.77 versus an expected $1.62. Total revenue was $152.9 billion, up 8.4%, compared to estimates of $150.81 billion. Walmart U.S. comp-store sales were up 6.5%.
Walmart CEO and president Doug McMillon noted that more customers have turned to shop at Walmart during a highly inflationary period.