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Walmart confident on inventories, outlook despite higher inflation

·3-min read
Walmart expressed confidence in having adequate inventory as it raised its outlook following a solid third quarter (AFP/Brandon Bell)

Walmart expects higher annual profits and expressed confidence on Tuesday that the chain will have sufficient inventories for the holidays despite the global supply chain snarls that have fueled inflation and created shortages.

The big-box retail giant reported better-than-expected third-quarter results as comparable sales at US stores jumped amid strong consumer activity.

Walmart's reputation for affordability in the current worrisome inflationary environment contributed to the boost in sales, according to aleading retail industry analyst.

But executives acknowledged that the chain is not passing on to consumers all of the costs incurred from higher labor and supply chain costs.

"Our momentum continues with strong sales and profit growth globally," Walmart Chief Executive Doug McMillon said.

"Looking ahead, we have the people, the products, and the prices to deliver a great holiday season for our customers and members."

Net income for the quarter ending October 31 dropped to $3.1 billion, down 39.5 percent from the year-ago period due to a loss connected to paying down debt.

Revenues rose 4.3 percent to $140.5 billion.

Confronted with backlogs at US ports, Walmart has been among the giant retailers to charter their own ships and route them to smaller ports.

Inventories at Walmart's US business are up 17 percent compared with two years ago, the company said in a presentation Tuesday.

- Costs rising -

The biggest retailer in the world acknowledged the higher costs connected with global shipping and supply chain pressures, saying it has reduced markdowns on goods to lessen the hit to profit.

An inflationary environment presents Walmart with both opportunity and challenges, according to Neil Saunders, managing director at GlobalData.

"The sharp increase in inflation has been felt by many households, especially when it comes to grocery shopping, and this has created far more churn in where consumers buy," Saunders said in an analysis.

He cited data showing Walmart picked up more occasional shoppers during the quarter.

But the retailer also faces higher labor costs amid a nationwide labor shortage.

"At present, Walmart is weathering this storm well and has offset some of the pressure with profit from new streams of business such as advertising and by lowering pandemic-related costs," Saunders said. "However, it will have to work increasingly hard if inflation and logistical challenges persist."

McMillon, on a conference call with analysts, said the company's cost inflation is running above its price increases at retail.

But he said the company was well positioned to still turn in solid profits because of a breadth of goods that will allow it to taking pricing when possible.

"We do start with the premise of keeping prices low," McMillon said.

Walmart boosted key forecasts, now projecting full year adjusted earnings of $6.40 a share, up from the prior range of $6.20 to $6.35 after US comparable sales jumped by 9.2 percent in the third quarter.

Home Depot also reported third-quarter results Tuesday, posting profits of $4.1 billion, up 20.3 percent from the year-ago period on a 9.8 percent rise in revenues to $36.8 billion.

Following the reports, Walmart shares were down about 0.7 percent to $145.99 near 1350 GMT before the New York open, while Home Depot climbed 0.9 percent to $374.39.

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