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Supply Chain News: Walmart Struggling with Inventory as Inflation Changes Consumer Buying Behavior


 

Need for Markdowns will Lead to Double Digit Decline in Operating Income in 2022

July 27, 2022
SCDigest Editorial Staff
     

Walmart expects strong same store US sales  in its Q2, but consumers are avoiding purchases outside of food and gasoline, leading to lower profits and too much inventory in many categories.

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Walmart’s new is seen as an ominous sign for the US economy, and its stock fell about 10% on the news.


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Walmart forecast US store sales will be up a robust 6%, but that rise will be driven by high inflation in food and other basic products, while sales of higher margin apparel, furniture and other product lines droop.

At is most recent earnings call in May, Walmart warned that it had a large pile of unsold merchandise. The comments this week were ahead of its next earnings report in mid-August.

Walmart said it was slashing prices prices to clear that inventory at both Walmart and Sam’s Club stores.

It also said those lower prices would hit its bottom line. Walmart now expects a 10-12% decline in operating income for both the second quarter and full year, after it projecting in May the potential for a slight increase for the second quarter and a decrease of 1% for the year.

On the May earnings report, Walmart said that that inventories rose about 33% in its fiscal first quarter, driven by shifts in consumer spending away from soft goods, furniture, home goods and electronics.

“The increasing levels of food and fuel inflation are affecting how customers spend,” Walmart CEO Doug McMillon said in a statement, adding that “while we’ve made good progress clearing hardline categories, apparel in Walmart US is requiring more markdown dollars.” He added that “"We're now anticipating more pressure on general merchandise in the back half” of the year.

Walmart is hardly alone in the retail world, as consumers shifted their spending away from categories that saw strong sales during the pandemic.

In June, just a few weeks after it reported quarterly results, Target issued a profit warning in the face of big jumps in inventory levels.


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Bed Bath & Beyond and Gap also recently issued profit warnings.

Walmart’s new is seen as an ominous sign for the US economy, and its stock fell about 10% on the news.

Other retail data is showing consumers are switching to lower cost retail private label brands, as inflation hits them right in the wallet.


What are your thoughts on retail inventories? Let us know your thoughts at the Feedback section below.


 
 

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