Holiday Demand, Inventory Off to 'Good Start,' Says Walmart CFO

Walmart is “off to a good start” for the holiday season, and customers “should expect to find the items they want,” said Chief Financial Officer Brett Biggs Tuesday on a quarterly call. Walmart’s inventory position is “good,” despite macroeconomic and industry challenges, and stores and fulfillment centers are “well-staffed,” said Biggs. The company decided last year to “be aggressive with inventory positioning,” and it paid off, he said. Inventory grew 11.5% in Q3 as Walmart prepared for an expected strong holiday sales season. See Q3 materials here.

Actions to reduce transit and port delays included adding lead time to orders, chartering vessels for Walmart goods, rerouting deliveries to less-congested ports and expanding overnight hours at key U.S. ports, Biggs said. Merchants are focused on “taking the necessary steps to mitigate supply chain congestion while working with suppliers and monitoring price gaps to manage margins appropriately,” he said. Lower markdowns and increased contributions from advertising revenue helped offset cost pressure, he said.

Walmart's U.S. comparable sales grew 9.2% for the quarter ended Oct. 31, including 5.7% growth in transactions, which was led by in-store shopping, said Biggs. Average tickets increased 3.3%, he said. Total revenue grew 4.3% to $140.5 billion. E-commerce sales rose 8% year on year and 87% vs. Q2 2019. The company raised full-year guidance to 6% U.S. comparable sales growth.

CEO Doug McMillon said market share gains for grocery and back-to-school shopping in the quarter showed an improved inventory position. Consumers “continue to move away from early pandemic behaviors,” he said. Walmart benefited in Q3 from a “strong consumer, a degree of inflation and government stimulus,” he said.

McMillon said “we haven't seen this kind of inflation in the U.S. for quite some time,” but the company has operated in markets with more extreme inflation and can draw on experience in managing through it. Walmart plans to “keep prices low” through mix management.

U.S. CEO John Furner said Walmart is going to manage through inflation “regardless of what happens.” It’s asking suppliers if they want to “get aggressive and swim upstream and take prices down, while prices are going up, to gain share,” he said. Walmart has “so many suppliers to work with and choose from" that it can find companies willing to adopt that strategy, and it expects to “find more of them.”

Walmart added 21 million new items to its e-commerce marketplace, bringing the total number of available items to 160 million, said Furner. The company has invested in supply chain and plans to add capacity for the overall network while scaling Walmart Fulfillment Services, he said.

To meet higher consumer demand, Walmart added about 200,000 employees in the last quarter, 75% in stores and a quarter in the supply chain, said Biggs. He was sanguine about the company’s wage increases, saying in the most recent round “565,000 people got a raise.”

Walmart+ memberships grew in the quarter, with membership income of $1.3 billion growing 40% year on year. Renewal rates were strong across the board, McMillon said. Individual and business members are shopping across channels, he said, spotlighting a “don’t forget” feature that uses a customer’s shopping history to target items they may have forgotten while shopping: “It's a completely digital way for us to help members and drive basket size at the same time,” he said.

“The business is changing,” said McMillon, outlining the retailer’s expanded omnichannel retail and digital capabilities. “This is a different company than it was, and we have a lot of runway in front of us,” he said, highlighting new attention to Net Promoter Scores and to “things underneath that will enable us to continue to grow regardless of what the environment’s like.”