Walmart Sees Sustained Pressure From Inflation as It Begins Automation Push

A Walmart store is seen in Encinitas, Calif., on April 13, 2016. (Mike Blake/Reuters)

Walmart said on Wednesday that inflation would continue to pressure its business this year, and that it would slow its pace of hiring as it builds out automation technology.

“We believe, over time, the number of associates will grow, but at a slower pace than in the past as we complement people growth with technology and automation,” CFO John David Rainey said at the company’s investor meeting in Tampa, Florida.

Inflation

Across the country, persistently high inflation is still pressuring many consumers.

The Labor Department reported last month that the Consumer Price Index climbed 0.4 percent in February from the previous month and 6.0 percent over the last 12 months.

More than 56 percent of Walmart’s sales come from groceries, where inflation has been the fiercest. Labor Department data for February show that food prices were up 9.5 percent compared to the year-ago period.

Walmart said that shoppers have added more lower-margin groceries to their carts over higher-margin apparel and home goods.

Further, consumers believe that inflation is much higher than it actually is.

According to the latest dunnhumby Consumer Trends Tracker: “Americans believe that grocery retailers are earning a 35.2 percent net profit margin, 14 times higher than grocers’ actual net profit margin average of 2.5 percent, and that food-at-home inflation is 24.3 percent, double the annual rate reported by the U.S. Bureau of Labor Statistics.'

Automation

Rainey’s comments come one day after the retailer said it expects about two-thirds of its stores to be serviced by automation within three years, and will reduce costs taken to process a package by 20 percent.

“Over time, the company anticipates increased throughput per person due to the automation while maintaining or even increasing its number of associates as new roles are created,” Walmart said.

Automation will also help the company prevent inventory build-up, which happened last year when food and gas prices sharply increased and consumers cut back on other purchases.

Automation will “get us closer to inventory optimization than ever before,” CEO Doug McMillon said.

The company, which has more than 5,000 U.S. stores, also stuck to its April quarter, full-year, and three- to five-year forecast of generating 4 percent sales growth and more than 4 percent operating income growth.

Rainey said Walmart was at an inflection point as the investments it makes in alternative revenue streams, including advertising, fulfillment services and membership programs, start making higher contributions to profitability over the next five years compared to its core brick-and-mortar retail business.

With such investments, “we think the opportunity for operating income growth over the next three to five years could be better than what we’ve outlined,” Rainey said.

Reuters contributed to this report.