Walmart Cautious in 2023 Outlook

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Walmart reported ecommerce growth of 17% in Q4 to $80 billion, representing 13% of total sales, and beat expectations overall, but warned of a challenging climate for the rest of the year based on consumer sentiment and macro signals, sending uneasiness through the industry and the markets.

It didn’t help matters that Home Depot gave a similar gloomy projection, for the same reasons. Shoppers in general at both big-box retailers are opting for less expensive, lower-margin purchases as they survey their kitchen-table economics.

Q4 revenue was $164 billion, up 7.3%, while operating income was down 5.5% on a GAAP basis to $5.6 billion. Adjusted earnings per share were $1.71, well ahead of the Refinitiv consensus of $1.51.

Walmart’s retail ad network continued to outperform, with revenue up nearly 30% in 2022 to $2.7 billion and accelerating in Q4, when growth was 41%. Executives said growing ad revenue is helping to lower the overall cost to serve in the fulfillment network. now lists 400 million SKUs, third-party and first-party items combined, with many 3P sellers taking advantage of Walmart’s fulfillment outsourcing.

Chairman and CEO Douglas McMillon emphasized Walmart’s cautious approach to 2023 guidance, given all the headwinds and unknowns, adding the company tends to do better than others in tough times based on its low prices.

“We could tilt into a recession,” McMillon said. “We don’t know what happens to consumer spending. We don’t know what happens to layoffs, household income. And so, given that we’re so early into the year, and there’s a lot of unknown unknowns right now, we’re simply taking a cautious outlook.”

Walmart ended Q4 with overall inventory about flat to a year ago, better than expected and down 3% in the U.S., while in-stock levels improved, helped by automation and data analytics. McMillon lauded the job supply chain and fulfillment associates did in handling all that volume.

The CEO cited the recent partnership with Salesforce, where Walmart’s outsourced fulfillment and delivery services are available through the Salesforce app, as an example of leveraging its technology and expertise to launch and scale a complementary solution in the midst of a challenging climate.

John David Rainey, EVP and CFO of Walmart, cited all the uncertainties before guiding analysts to 2.5% to 3% sales growth, an operating income increase of 3% and comp growth of 2% to 2.5% for 2023.

Rainey said Q4 ecommerce sales were driven by strong growth in store-fulfilled pickup and delivery. “Over the last two years, store-fulfilled delivery sales have nearly tripled, and we’re now doing over $1 billion a month, which gives you an indication of why we’re so excited about the progress here,” he said.

In the past five years, Walmart’s operating income has grown at about half the rate of sales on an adjusted basis, Rainey said. “This is the result of important investments we’ve made in associate wages, pricing, technology and supply chain, which together strengthened our core business and positioned us well for the future,” he said.

When asked about growth and performance of Walmart+, the company’s competitive subscription program to Amazon Prime, McMillon did not get into specifics.

“We’ll continue to describe Walmart+ to you, but not in such a way that the market gets overly focused on that metric because we want to be evaluated on several metrics,” he said. “We’ve seen other companies end up with some sort of shorthand, where people are watching one metric to determine the future of the company. And it’s just not that simple in Walmart. Obviously, people want to pay for delivery in bulk with an annual membership, not per delivery. That’s what led us to this point.”

John Furner, President and CEO of Walmart U.S., said Walmart+ members tend to be younger, higher income and tech savvy. “Having an offer that is great for consumers in terms of the behavior they’re seeking, which is convenience and not worrying about incremental delivery fees, is working fantastically,” Furner said.