Walmart stock tumbles as supply chain snarls hit margins ahead of holidays

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(Businesshala) – Walmart Inc shares suffered the biggest intraday fall since May on Tuesday, as higher supply chain costs eaten into quarterly margins, even as the world’s largest retailer cut its annual Enhanced sales and profit forecasts.

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Major retailers, including Amazon.com, have been struggling to bring products to the United States ahead of the peak shopping season in recent months due to shipping logjams, closed factories in parts of Asia, and raw material shortages.

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The impact on Walmart’s margins comes despite the retailer’s efforts to limit disruption from a lack of supply chains to ship goods on its own, ordering products in the United States ahead of time and less crowded ports. But to re-route the delivery.

Walmart shares fell 2.5% after the company’s third-quarter gross margin fell 42 basis points (bps). This period includes October, when some consumers started shopping early for the all-important holiday. Analysts said Walmart’s tight margins may continue for the rest of the festive season.

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Supply chain issues or inflation could see Walmart down 10-30 basis points on its fourth-quarter gross margin rate in the United States, Evercore’s Greg Melich said.

Walmart’s results come weeks after rival e-commerce giant Amazon lowered its fourth-quarter outlook and warned of higher costs during the holiday period.

Arkansas-based Walmart’s Bentonville said inventory rose 11.5% in the third quarter, after officials said measures taken to deal with port delays position Walmart well for the holidays. However, some consumer analysts, including NPD Group’s Marshall Cohen, said this could eventually force the company to heavily discount the holiday products it sells.

“Prolonged periods of sustained demand for goods have stretched the supply chain, resulting in depleted stocks and inflation,” Chief Executive Officer Doug McMillan said.

Walmart kept prices low in the third quarter to get shoppers into the store. With more than 5,000 U.S. stores, the discounter’s size and leverage with consumer product companies allows it to sell goods at lower prices, a major advantage when U.S. inflation hits 30-year highs.

holiday rush

The company said increased contributions from its advertising business helped alleviate some of the supply-chain pressure on margins. Retailers are aggressively chasing consumer brands’ advertising dollars, exploiting the wealth of their buyer data and Prime Media space in their websites and stores.

Walmart said it expects full-year US same-store sales to rise more than 6%, with 5% to 6% growth in anticipation of increased demand for toys and apparel during the crucial holiday season. higher than previously forecast. Adjusted profit is expected to range from $6.20 to $6.35, up from the previous range of $6.40 per share.

In the third quarter, sales at US stores rose 9.2% over at least a year, excluding fuel, benefiting from higher grocery demand and more people shopping at stores. Analysts had forecast a gain of 7.04%, according to Refinitiv data.

Walmart’s international business grew nearly 10% excluding the impact of currency volatility and disinvestment, benefiting from strong sales in China and India’s Flipkart, which received a major push from its promotional schedule ahead of the local festival of Diwali .

Total revenue rose 4.3% to $140.53 billion, better-than-expected and earned $1.45 per share, 5 cents higher than Wall Street’s expectations on an adjusted basis.

“We have the people, products and prices to deliver a wonderful holiday season for our customers and members,” McMillan said.

Reporting by Aishwarya Venugopal in Bengaluru and Richa Naidu in Chicago; Editing by Arun Koyur, Kirsten Donovan, Aurora Ellis and Nick Ziminsky

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