Walmart Inc. is doubling down on its game plan for long-term growth.
Senior-level executives and thousands of employees from the nation’s largest retailer descended on the Bentonville, Arkansas-based company’s headquarters this week for its shareholder and associates week. The annual festivities — the first in-person one in three years — are meant for shareholders and executives alike to celebrate the firm’s success while spotlighting employees from around the world.
But analysts grilled top-level executives Friday morning during a question-and-answer session, regarding Walmart’s recent performance. The company revealed less-than-stellar quarterly earnings in May, disappointing Wall Street and causing shares to fall.
“We did not enjoy the first quarter,” Doug McMillon, president and chief executive officer of Walmart, told analysts.
As the nation’s largest retailer, Walmart’s disappointing results left many retail investors concerned about the state of the consumer. Much of last quarter’s letdown stems from macro-inflationary pressures throughout the supply chain and changing consumer shopping habits that impacted inventory levels, all of which cut into profits even as the top line continued to grow.
“We were, as we said, kind of surprised by the pace of change and the magnitude of cost impact, kind of middle of the quarter on,” McMillon said. “We faced inflationary pressures, kind of, throughout the income statement. Top line was in pretty good shape. As we mentioned, we do see some changes with some really value-conscious customers. We’ll see how that plays out quarter-to-quarter.”
But he added, “Not a lot has changed since we released our results. We’re focused on keeping the top line going. We do care about units and dollars. We’ll track baskets, units, market share. We’ll look at all those metrics to evaluate our own performance as we look ahead. And then we’ve been working really hard on costs, top to bottom, taking action to get our costs down so that the second quarter looks better than the first quarter and then we’re on our way. It will take a little bit of time to work through the inventory and we have more inventory than we want.”
Headwinds over the last few months included elevated inventory levels, up 32 percent in the first quarter, year-over-year, as consumers shifted from purchasing at-home products to more services and experiences faster than the company anticipated.
“Getting the inventory level right is one of the keys to success,” McMillon said. “General merchandise, apparel, seasonal hard lines, home, those are all really important, both in stores and online. But when you get too much, you get to mark down, you get too much handling. You get too little and you don’t have enough to really drive the margin mix. To me, that’s the key when I think about getting the mix right over time, more so than just how the customer or member responds to the environment.”
John Furner, president and CEO of Walmart U.S., added: “It’s probably another couple of quarters until we manage the inventory down to a level that we’re going to be happy with. It will still be up on last year. We still had out-of-stocks last year. We have some inflation built into the inventory numbers. It’s just that 20 percent of the increase that we need to work through and get out of the system.”
Another issue discussed during May’s conference call was labor. Hiring shortages plagued employers throughout the economy last fall. Walmart revealed plans to hire 20,000 along the supply chain in September. December’s surge of the Omicron variant didn’t help the labor shortage. As COVID-19 case numbers increased, many employees called in sick.
But last month, executives said the company actually hired too many people, as evident in the swift return to work of many employees at the beginning of the year.
“We ended up with weeks of overstaffing,” McMillon said in May.
Increased wages and enhanced benefits, such as college tuition reimbursement, also put pressure on bottom-line results.
Then, in an interesting twist, Walmart said this week that it was looking to hire more than 4,000 people as it opens four new fulfillment centers.
Both Kathryn McLay, president and CEO of Sam’s Club, and Furner said their divisions were at full employment.
“That doesn’t mean that we don’t have pockets,” McLay said. “You’re still in markets trying to find solutions. But pretty much across the board, we’ve been at full employment. We’re not seeing that as being a barrier for us at hand.”
Furner added that while the company’s strategy was to over-schedule employees throughout the pandemic, this only became an issue in February when staff began to return.
“We had quite a surge of people that came to work, probably one that I’ve never seen anything like for a few weeks,” he said. “So the team made adjustments over time. We worked that through with attrition and scheduling out for a few weeks. And I’d say by the end of the quarter, late March, bill of April, end of April, I think, we feel really good about our staffing levels. Supply chains also feel really good about staffing levels all across the country, really end to end.”
Still, the need for increased fulfillment center employees comes as consumers continue to use the internet for their shopping needs, even as store traffic rises. Many retailers have reported a mix of consumers shopping in person and online.
“The future will be what it will be,” McMillon said. “If the world is under more pressure and people are generally more value-conscious, we’re the place to go. If the world is a little more brighter than that and people can experience more convenience than we’ve got delivery and we’ve got e-commerce and we’ve got everything else.
“We can build a more profitable company,” the CEO continued. “Some of the things that we’ve started are really encouraging and that will result in a better bottom line as we continue to have a top line that grows and earn share and earn the favor of customers and members, which is our goal. So we don’t really see anything strategically that concerns us.”
“We just want to go faster to get those things done as we manage the short-term pressures, which seem to change fairly frequently,” McMillon added. “It’s a very fluid environment. And obviously, the pandemic was a significant change and there were things that happened within that pandemic period and racial equity and other things that occurred. And now we’re staring a different set of circumstances in the face, and we’ll adjust to those just as we do the other ones.”
Shares of Walmart, which closed down 1.72 percent to $125.32 each on Friday, are down 11.65 percent, year-over-year.
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