Walmart Inc. on Tuesday raised its annual sales and profit forecast in anticipation of a surge in demand for toys and apparel during the crucial holiday season, even as global supply chain disruptions hit its margins in the third quarter.
Shares of the world’s largest retailer were flat in pre-market trading, reversing earlier gains of 2 percent.
Major retailers including Amazon.com have been struggling to bring products into the United States ahead of the peak shopping season due to shipping logjams, shuttered factories in parts of Asia and a scarcity of raw materials in the recent months.
Walmart, which has been chartering its own vessels to move goods, said U.S. inventory was up 11.5 percent ahead of the busy festive season.
“We have the people, the products, and the prices to deliver a great holiday season for our customers and members,” Chief Executive Officer Doug McMillon said in a statement.
Some analysts expect Walmart and its rivals to have enough inventory this holiday season as shipments that have been delayed for months arrive at U.S. ports.
“All of a sudden you have three months worth of product coming in,” Marshal Cohen, NPD’s chief retail analyst, said.
“What could have been a shortage of product at one point could now very well turn into a surplus.”
Walmart’s forecast comes weeks after rival ecommerce giant Amazon reported an underwhelming fourth-quarter outlook and warned of higher costs during the holiday period.
Bentonville, Arkansas-based Walmart also said it expects full-year U.S. same-store sales to be more than 6 percent higher than its prior forecast of a 5 percent to 6 percent rise. Adjusted profit is expected to be around $6.40 per share up from a previous range of $6.20 to $6.35.
In the third quarter, sales at U.S. stores open at least a year rose 9.2 percent, excluding fuel, benefiting from higher grocery demand and people buying more at stores. Analysts had estimated a gain of 7.04 percent, according to Refinitiv data.
“We gained market share in grocery in the U.S., and more customers and members are returning to our stores and clubs around the world,” McMillon said.
The increased foot-traffic comes at a time when inflation is high, and deep discounters like Walmart are trying to draw cash-strapped Americans to stores.
“The long period of sustained demand for goods has stretched supply chains, resulting in out of stocks and inflation,” McMillon said. “Fighting inflation is in our DNA.”
Still, some analysts warned of a margin hit during the festive season, with Evercore’s Greg Melich saying that supply chain issues or inflation could see Walmart down 10–30 basis points on its fourth quarter gross margin rate in the U.S.
The company’s third-quarter gross profit rate decreased 42 basis points. Total revenue grew by a better-than-expected 4.3 percent to $140.53 billion and on an adjusted basis it earned $1.45 per share, 5 cents above Wall Street expectations.
By Aishwarya Venugopal and Richa Naidu