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Walmart’s 2023: Helping People Save Money and Live a Better Life

Thomas Paulson
Feb 24, 2023
Walmart’s 2023: Helping People Save Money and Live a Better Life

As inflation for groceries has remained higher and for longer than management expected--the double-digit rate is depressing sales of Walmart’s discretionary merchandise, which carry higher margins--Walmart in 2023 is "dedicated to helping people save money and live a better life. That's who we are," per CEO Doug McMillion. They will do so by "increasing the grocery mix to entry price points and better value for its owned-brands." This will cost them gross margin rate, which will also give them license to "request" that dry grocery vendors similarly take margin hits. Should Walmart find success with 2023’s aspirations, the overall inflationary spiral will mellow.

  • Walmart’s view in regards to the health of the U.S. consumer was largely unchanged from its view last November and in-line with that provided in our Holiday 2022 & Beyond Outlook. Moreover, that "unchanged" outlook allowed the company to rid itself of the excess inventory that has burdened its, and the industry’s, profitability. McMillion noted that, “the holidays were strong for us. From Thanksgiving to Christmas…around the world, the teams leaned into our food and consumables strength, taking share in places like the U.S. and Canada and delivered a good experience for customers and members in general merchandise…  [Consumers are being] choiceful, discerning, thoughtful. I think you can see it in the mix impact. Customers are still spending money…[but they are] making choices."
  • Of importance and as we have written in the Anchor over the past month, spending growth at restaurants and out-of-home has been building, although some of the growth is due to higher prices that chains have implemented due to inflation (restaurant visits remain down on a YoY basis). To accommodate that discretionary services spending, consumers are “making choices” to not spend on discretionary goods (which had grown ever higher over the past three years and which is now normalizing).
  • For Q4 2022, Walmart's U.S. comparable store-sales for the U.S. increased +8.3%, driven by grocery (up mid-teens) but partly offset by a mid-single decline in general merchandise (toys, electronics, home, and apparel). The comparable ticket increased +6.3%, brick & mortar transactions (excluding pick-up) were roughly flat, and e-commerce sales increased +17%. The e-commerce growth was driven by increasing Walmart+ activity, curbside, and its third-party marketplace. Walmart now has 400M SKUs on its web store, up from 170M two years ago, with a significant portion of the third-party items fulfilled by Walmart.
  • As’s data shows below, December was the winning month during the quarter. We suspect the gap between flat transactions and -2.5% traffic reflects “higher purchase intent” for those visiting retail locations compared to last year. Emblematic of that intent is a customer mix that has risen in affluence.
  • Sam’s Club produced another strong quarter and management’s outlook implies that is to continue. Comparable store-sales increased a very robust +12.2%, nearly double Costco’s +6.2%. Sam’s increase was composed of transactions (+5.5%), ticket (+5.2%), and good e-commerce growth driven by curbside and delivery. Sam’s Club has a more affluent customer mix than Walmart, and is gaining in affluence. That’s allowed Sam’s to put compelling treasure-hunt values and more premium brands/product into its clubs, and that product is selling (the Q4 2022 selling mix was healthy, as it has been throughout the year). Management's 2023 guidance for Sam’s is a +5% increase in comparable-store sales.  
  • Sam’s Club CEO Kathryn McLay noted that its “...membership income has grown solidly across [the past] 12 quarters… e're growing with mid- to high household income groups with share of wallet. We're growing with millennials and Gen Z as the largest growth area in our membership base. And then if I look at market share, we're growing market share in our club channel despite no opening clubs while our competitors were opening clubs.” Our data suggests that the collective trade area for Sam's Club is over-indexing to millennials and Gen-Z, reinforcing management's views. Please reach out to us for additional analysis on Sam's Club versus Costco.  
  • Walmart guidance for all banners includes +4.5%-5.0% sales growth for Q1 2023, +2.0%- 2.5% U.S. comparable-store sales growth for the year, and for underlying margins to increase slightly. Given that clearance activity was high during 2022 (resulting in a 80 basis point hit to margins), the margin guidance implies that management expects general merchandise to again be soft as a percent of sales. THAT is why Walmart wants U.S. households to get ahead of inflation so that households have more discretionary dollars to spend on apparel, home, entertainment, consumer electronics, etc. And that is why they will be pushing back on further price increases by dry grocer suppliers. Success in this endeavor would allow Walmart to exceed both its sales and earnings 2023 guidance.

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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