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Walmart Earnings Fall Short Thanks to Rising Gas and Food Prices

Walmart Earnings Fall Short Thanks to Rising Gas and Food Prices

Walmart is proving that even the nation’s largest retailer may not be immune to the economic pressures that are causing consumers to reevaluate their spending habits. 

Rising food prices meant more shoppers flocked to Walmart in the most recent quarter in search of grocery deals.
Courtesy Photo

The Bentonville, Ark.-based firm revealed quarterly earnings Tuesday before the market opened, improving on top-line revenues, but failing to meet Wall Street’s expectations after falling short on bottom-line profits. Company shares fell nearly 9 percent at the start of Tuesday’s trading session. 
“Bottom-line results were unexpected and reflected the unusual environment,” Doug McMillon, president and chief executive officer of Walmart, said in a statement. “U.S. inflation levels, particularly in food and fuel, created more pressure on the margin mix and operating costs than we expected. We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.”  

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For the most recent quarter, or the three-month period ending April 30, total revenues grew 2.4 percent to about $141 billion, up from more than $138 billion a year ago. Comp sales at Sam’s Club grew 10.2 percent, and 17.4 percent on a two-year stack. Membership income rose 10.5 percent. 
Walmart U.S. e-commerce sales increased 1 percent, or 38 percent on a two-year stack. Last August, McMillon said the company’s global e-commerce business was on track to reach $75 billion in revenues by the end of the year. The company still hasn’t said whether it has reached that goal yet.
Meanwhile, ​​net sales at Walmart International fell $3.5 billion during the most recent quarter, or 13 percent to $23.8 billion, negatively impacted by $5 billion, due to divestitures. The retailer logged $2.05 billion, down from $2.73 billion during last year’s first quarter, as a result. 
The results are a mixed bag. Walmart’s affordably priced food selection means consumers are increasingly flocking to the mass channel for their grocery needs. But McMillon added on Tuesday morning’s conference call with analysts that inflation is also lifting the average ticket price. Shoppers are responding by purchasing fewer discretionary items, resulting in smaller overall basket sizes. 
“As expected, consumers are increasingly drawn to the lower price points that Walmart can offer for groceries and Walmart is taking market share in food, but higher food sales is also putting pressure on gross margin,” Moody’s retail analyst Mickey Chadha wrote in a note. He added that the higher inventory levels “could lead to increased promotional cadence in the coming quarters if consumers continue to pull back, which could increase pressure on earnings. It is increasingly difficult to pass on higher prices to consumers while dealing with higher wages and employee costs.”
In terms of food costs, McMillon said there’s been double-digit inflation. “And I’m concerned that inflation may continue to increase. As it relates to Walmart U.S. general merchandise sales, we knew that we were up against stimulus dollars from last year, but the rate of inflation in food pulled more dollars away from [general merchandise] than we expected as customers needed to pay for the inflation in food,” he said.

Aside from rising consumer food and gasoline prices, executives on the call told analysts that additional headwinds came from higher-than-expected inventory levels (up 32 percent for the quarter, year-over-year), added fuel costs in the supply chain and increased labor expenses. 
“As the Omicron variant case count declined rapidly in the first half of the quarter, more of our associates [who] were out on COVID-19 leave came back to work faster than we expected,” McMillon said. “We hired more associates at the end of last year to cover for those on leave. So we ended up with weeks of overstaffing. That issue was resolved during the quarter, primarily through attrition.”
In addition, U.S. fuel cost the retailer more than $160 million more during the quarter than originally expected.

Doug McMillon, president and chief executive officer of Walmart
Courtesy Photo

Still, McMillon expressed optimism for the future. 
“Across our businesses, we had a strong top-line quarter,” he said. “There were some things that happened during the quarter that were different than we expected and we’re trying to be very transparent about those things. There seems to be more uncertainty now in a very fluid environment. And so, we’ll just deal with that.”
One way will be by slashing prices in high-margin areas, such as apparel, in an effort to manage excess inventory. While this might seem counterintuitive, McMillon said shoppers on a budget are more likely to notice. 
“Part of what’s at play here is [that] you’ve got food inflation moving up, but we’ve got general merchandise categories, like apparel and some of our hardlines categories, to play with,” he said. “And the beauty of it is [that] customers are even more price sensitive right now. They’re attention to fuel prices and high-food prices is high. And so when you bring [a price of] something down in sporting goods or hardware, one of these other categories, they notice even more than they would notice before and that makes the elasticity impact be different than it would be otherwise, which blends the mix up.” 
In addition, some tailwinds for the quarter included things like game consoles, as well as patio furniture, grills and gardening supplies, thanks to warming temperatures.

“In terms of the consumer themselves, we’ve seen strong growth with higher-income consumers, middle-income and lower-income, but we do see a definite strength with high-ticket items,” John Furner, president and CEO of Walmart U.S., said on the call. “With some consumers and others, we do see some switching, which would include switching specifically from brands to private brands. And where we see the switching from brands to private brands, we’ll continue to watch that for a group of customers, but we’ve got to all work harder to keep prices low for the American consumer.”
McMillon added: “It’s important to recognize that there’s more than one consumer. We serve the whole country. [With] the U.S. in particular, we’ve got a breadth of customers and they behave differently. [With] some customers, we are seeing some indications of change throughout the quarter, but that’s not true for all of them.”

Pieces from Walmart’s Love & Sports brand.
Courtesy Photo

Walmart has worked hard over the last few years to expand its assortment of merchandise, particularly in fashion. The big-box retailer now sells more than 1,000 third-party apparel, accessories, and beauty and wellness brands — such as Levi’s, Reebok, Free People, Jordache, Eloquii, Space NK and Kris Jenner’s home cleaning brand Safely — and continues to add to the scale and breadth of its portfolio of brands each quarter. Earlier this month, the firm expanded its distribution of period-panty brand Proof to approximately 4,000 Walmart stores.
In addition, Walmart has an extensive list of its own apparel brands, three of which are worth more than $2 billion, although the company declined to say which ones. The list includes sustainable innerwear and maternity brand Kindly, swimwear and activewear brand Love & Sports, and apparel brands Free Assembly and Scoop, of which luxury designer Brandon Maxwell serves as creative director.
“Maintaining price competitiveness is the key risk for Walmart in today’s inflationary environment,” Landon Luxembourg, senior analyst at research firm Third Bridge, wrote in a note. “As consumer wallets come under pressure, private brands will likely take the stage as consumers trade down from a pure decision of opting for lower-cost items. Walmart’s private brand portfolio, which was a focus area over the last four to five years, has now doubled its assortment. However, it has not grown consumer mind share and lack recognizability versus Target and Costco’s competing private assortment, which may be more sought after by consumers.”

Walmart anticipates current quarter revenues will increase more than 5 percent, excluding divestitures. U.S. comp sales are also expected to grow — between 4 percent and 5 percent — excluding fuel, while earnings per share are expected to be flat to up slightly, excluding divestitures.  
For the full year, the company expects net revenues will rise about 4 percent, excluding divestitures. Walmart U.S. comp sales are expected to increase roughly 3.5 percent, excluding fuel, while earnings per share for the year will decrease about 1 percent, excluding divestitures.
The company ended the quarter with $11.8 million in cash and cash equivalents and more than $32 million in long-term debt. 
Shares of Walmart, which closed up 0.11 percent Monday to $148.21, are up 6.7 percent, year-over-year.
“We don’t expect this miss to become a norm, seeing that Walmart has historically outperformed competition during tough economic times,” Arun Sundaram, senior equity analyst at CFRA Research, wrote in a note. His firm maintained its “buy” position on Walmart’s stock, but cut the 12-year price target by $3 to $162 a share. “The good news is most of these issues seem to be isolated to the quarter and margins should improve in the second quarter and the back half of the year as Walmart works through excess inventory and better matches pricing with costs.”

Potential Purchasers Circle Reebok as Deadline Approaches

Potential Purchasers Circle Reebok as Deadline Approaches

Who’s in, who’s out? That’s the question swirling around potential purchasers of the Reebok brand.
As the Aug. 2 deadline approaches for second-round bids to be submitted, speculation is rampant about who might buy the sports brand from Adidas, its German parent company. As reported, at the end of last year, Adidas put the brand up for sale and said it hopes to complete a deal by the end of this year.
One front-runner from the beginning has been Authentic Brands Group, the brand management firm headed by Jamie Salter that has made most of the high-profile deals in the U.S. over the last few years, including Barneys New York, Forever 21, Brooks Brothers, Sports Illustrated and Eddie Bauer.

On Friday, reports surfaced that ABG had bowed out, but some observers were skeptical. “It seems very strange,” said one source. “ABG doesn’t drop out of anything if they really want something.”
Salter has made no secret of his interest in Reebok since his company controls the intellectual property of Shaquille O’Neal, who was an ambassador for the brand during his playing days in the 1990s. ABG could not be reached for comment Friday and is in a quiet period since it has filed paperwork with the Securities and Exchange Commission to go public this summer.
Whether ABG submits a bid for Reebok next month remains to be seen, but another name has surfaced as a highly interested party: WHP Global. The owner of the Joseph Abboud, Anne Klein and Toys “R” Us labels was created two years ago and is headed by Yehuda Shmidman. Since its founding, WHP has received $350 million in equity commitments from funds managed by Oaktree Capital Management. A WHP spokesperson declined to comment.

In addition to WHP, a number of private equity firms are also on the short list to buy Reebok, according to sources: Advent International, Cerberus Capital Management, CVC Capital Partners and Sycamore Partners.
Adidas bought Reebok for $3.8 billion in 2006 and the price tag now is expected to be around $2.4 billion. In its most recent earnings release on May 7, Adidas only said it has incurred costs of 60 million euros related to the intended divestiture of Reebok in the first quarter, and is reporting all income and expenses for the brand as discontinued operations. However, Harm Ohlmeyer, chief financial officer of Adidas, said Reebok “experienced a sustainable business recovery in Q1, with net sales up double digits backed by a strong order book going into 2021.”
Matt O’Toole, president of Reebok, told WWD in May that the sale process is a long one and Adidas is still narrowing down the field of potential purchasers but is still on track to complete the transaction by yearend.

Cardi B Just Launched Her Reebok Collaboration. Here’s Everything You Need To Know

Cardi B Just Launched Her Reebok Collaboration. Here’s Everything You Need To Know

Rapper Cardi B models her new Club C footwear for the Reebok x Cardi collaboration

American rapper Cardi B decided to celebrate her 28th birthday with her loyal fans by taking to Instagram to announce her first ever Reebok x Cardi footwear collection, dedicating the drop to her followers. “As my birthday gift to my loyal fans I’m dropping limited pairs TONIGHT at MIDNIGHT EST on Reebok.com,” revealed the global superstar.
The Reebok x Cardi B footwear collection, which officially launched on November 13, and is available to Middle East fans on Namshi, has been designed to inspire women through self-expression and remaining unapologetically true to oneself – something Cardi B is famous for.
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The new collaboration sees the Grammy award-winning artist redesign the iconic Reebok Club C sneaker with two new silhouettes – the Club C Cardi (AED 475) and the Cardi Coated Club C Double (AED 399), both of which are available in women’s and children’s footwear sizing.
The Reebok x Cardi footwear is not for the fainthearted

While Cardi has been proudly modelling the collection across her social platforms, she is more than just a figurehead in the project. In fact, the musician and actor was hugely instrumental in the design process for the footwear, taking cues from some of her most recent iconic fashion moments. As a result the Reebok Club C shoe, which began its life in 1984 as a humble white tennis sneaker, has been revamped and transformed into a bold, show-stopping style statement. Not intended for wallflowers, the redesign by Cardi B comes in shades of black, white, or red, rendered in glossy finishes.
Cardi B in the new Reebok x Cardi campaign

“Through her new collaboration with Reebok, Cardi B will be headlining an all-new campaign titled B Unexplainable, celebrating her personal growth, passion for design, and equality,” explained a Reebok spokesperson. “Through the campaign Reebok and Cardi B aim to explore society’s expectations of women: how they are told to be perfect but humble, strong but caring; and when we have the nerve to get the balance wrong, we’re labeled as ‘too much,’ ‘too extra,’ ‘too dramatic,’ or ‘too vain.’ Instead of trying to do what we’re expected to do, let’s do what we’re entitled to do: move through the world without explanation. Just like Cardi.”
Read Next: This Is Proof that Cardi B is this Arab Designer’s Biggest Fan

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