Global retail giant Walmart (WMT) recently reported results for the second quarter of its fiscal year, which ended July 31. Second-quarter revenue was $6.9 billion, down 6.8% from the same period last year. Adjusted earnings were $1.77 per share, well above the $1.60 per share consensus.
Wal-mart said it had canceled billions of dollars in orders and reduced some unpopular products to bring inventory levels in line with projected demand.
The largest U.S. retailer (NYSE: WMT) said its U.S. segment reported a 26% increase in inventory levels for its U.S. segment in the fiscal 2023 Q2 quarter (April 31 through July 31, 2022) compared to the same period in fiscal 2022; Increased 750 basis points from Q1 of FY2023; At the time, Wal-Mart was neglecting its inventory of high-end products due to rapidly rising costs and inflation.
Wal-mart executives said the company had cleared most of its seasonal summer inventory ahead of the back-to-school season, which has already begun in much of the South, and the upcoming holiday season. The company is making progress in adjusting the size of its inventory, but it will take at least a few quarters to smooth out the imbalance in its network, executives said.
Walmart’s U.S. inventory levels rose 25.6 percent in Q2 compared to the same period last year.
John David Rainey, Wal-Mart’s chief financial officer, said 40 percent of the $11 billion high inventory reflected higher commodity costs due to inflation, and he said about $1.5 billion of that is the amount Wal-Mart would like to make go away.
Rainey said on the earnings call that Walmart is selling excess merchandise by cutting prices and has “canceled billions of dollars in orders to help bring inventory levels in line with expected demand.” He estimates that about 15 per cent of the company’s inventory growth is above its expected level.
Walmart’s seasonally adjusted inventory turnover days fell to 44 in Q2 from 46 in the previous quarter, according to Michigan State University.
Jason Miller, an associate professor of logistics at the university’s Eli Broad School of Business, said Wal-Mart’s gross margins were hit by its actions.
He said Wal-Mart’s gross margin hasn’t fallen as much as rival Target Corp. ‘s (TGT), but Target, which faces the same inventory challenges as Wal-Mart, has also been running down inventory as quickly as possible.
Miller said Wal-Mart’s seasonally adjusted product arrivals, which are not adjusted for inflation, rose just 0.1% in Q2 from Q1;
Meanwhile, seasonally adjusted sales, which aren’t adjusted for inflation, rose 4.1% during the same period, Miller said.
“This is where the reduction in inventory comes in,” Miller said in an email.
Miller said most of Wal-Mart’s inventory inflation occurred during the Q4 quarter, when arrivals far exceeded sales.
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Post time: Aug-19-2022