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Walmart cancels billions of dollars in orders to right-size inventory levels
Retail giant posts better-than-expected EPS, solid revenue gains, drop in operating income
Mark Solomon
· Tuesday, August 16, 2022
Walmart cancels billions of dollars in orders in inventory right-sizing move (Photo: Jim Allen/FreightWaves)
Walmart Inc. said Tuesday that it has canceled billions of dollars in orders as part of a continued effort to align inventory levels with projected demand and to reduce its exposure to certain products that have fallen out of favor with budget-conscious consumers.
The nation's largest retailer (NYSE: WMT) said its U.S. division reported a 26% increase in fiscal second-quarter 2023 inventory levels compared with the same period in fiscal 2022. This was a 750-basis-point improvement over a nightmarish fiscal 2023 first quarter when Walmart got blindsided by a combination of rapidly rising costs and a mix of higher-end inventory that was passed over by consumers coping with rapidly rising inflation.
Walmart executives said the company has cleared out most of its summer seasonal inventory ahead of the back-to-school season — which has begun in large parts of the South — and the upcoming holiday period. Executives said the company is making progress right-sizing its inventories, but that it will take at least a couple more quarters to wring the imbalances out of its network.
Walmart's seasonally adjusted days to turn inventory declined to 44 days in the second quarter from 46 in the prior quarter, according to data from Michigan State University. That signals that sales are starting to outpace order arrivals, according to Jason Miller, associate professor of logistics at the university's Eli Broad College of Business.
Walmart's gross margins took a hit as a result of its actions, said Miller. He said, however, that the gross margin drop was not as severe as at rival Target Corp. (NYSE: TGT). Target, which faces the same inventory challenges as Walmart, has also been reducing inventories as quickly as possible.
Walmart's seasonally adjusted product arrivals, not adjusted for inflation, increased by just 0.1% in the second quarter from the first, said Miller. At the same time, seasonally adjusted sales, again not adjusted for inflation, rose 4.1% over the same period, Miller said. "This is why inventories were drawn down," Miller said in an e-mail.
Most of Walmart's inventory inflation occurred in the fourth quarter, when arrivals far outpaced sales, Miller said.
Walmart's comments came as it reported fiscal second-quarter results that were more palatable than the fiscal first-quarter disaster. Adjusted earnings per share of $1.77 was well ahead of the $1.60-per-share consensus. Revenue of $152.9 billion was an 8.4% year-over-year increase adjusted for currency fluctuations. Operating income of $6.9 billion was 6.8% below the same period a year ago.
For the fiscal third quarter, Walmart projected a 5% year-on-year increase in net sales. It also projected an 8% to 10% year-on-year decline in operating income and a 9% to 11% drop in adjusted earnings per share.
Shares rose more than 5% on the trading day to close at $139.37 a share.
Friday, August 19, 2022 at 4:01 pm
Since Walmart began as a heartfelt company deep inside "flyover" country, we've always loved and patronized Walmart~!! Now that the DC Swamp "Woke" folks have taken over, and, they have stabbed Mike Lindell, (who makes All of his products in America), in the back, and, they have blocked all of us from buying "My Pillow" products, we will Never Buy Anything From Walmart Again~!!
Saturday, August 27, 2022 at 6:44 pm
They don't care , they get they EBT and that's what they worry about now.
I. Canread
Thursday, August 18, 2022 at 7:18 am
How did you get this information from the future?? Tell us about 2024. Or fix the typos.
Key word is fiscal. Walmart's year end is January 2023. This is why the article references fiscal 2023. Not a typo.
Thursday, August 18, 2022 at 12:26 pm
its spelled physical dummy
whirlwinder
fiscal refers to the money in your wallet.
Physical refers to your Butt cheeks hugging your wallet.
Now, go back to school and learn.
Richard Orey
Thursday, August 18, 2022 at 1:52 pm
No it is not physical. That is not the correct word. It is fiscal which is the correct word. Look up the definitions of both words and you'll see that fiscal is the correct word and not a mistake of spelling the word physical.
Craig Jackson
Wednesday, August 17, 2022 at 5:18 pm
Just guessing the dates 2022 and 2023 in this article are typo's.
That or investment companies are reporting "future" information.
Walmart is also cutting employees hrs at some D C s with reduced delivery
The ripple effect of layoffs will be right behind the cancellation of orders
Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.