Walmart has reportedly cancelled ‘billions in orders’ due to overstocks as the retailer attempts to clear out inventory excess.
In a call with investors announcing results for the second quarter, Walmart CFO John Rainey said the company has “cancelled billions in orders” to deal with excess inventory that has amassed over the last few quarters.
Walmart has found itself with higher-than-usual stock levels, which the company says is a result of delayed orders from Q1 and Q2 that it has only recently taken delivery of. Together with current, existing orders, this means that Walmart’s warehouses and stockrooms are now overflowing. A shift by consumer spending away from discretionary categories is also compounding the issue, leaving Walmart with excesses in certain categories.
In addition to order cancellations, Walmart has been forced to activate markdowns in categories that were experiencing a drop in sales. John Rainey estimated that only about 15% of Walmart’s inventory growth in Q2 was “above optimal levels”.
“We feel much better about the second half of the year,” said Walmart US CEO and president, John Furner. “We still have the inventory to work through and ingest from the backlogs, as we said. So we need a couple of quarters to do that.”
Overall, Walmart beat expectations for earnings and revenues in Q2, after it slashed its outlook for the quarter last month. The company reported adjusted earnings per share of $1.77 versus an expected $1.62. Total revenue was $152.9b, up 8.4%, compared to estimates of $150.81b. Walmart US store sales were up 6.5%.
Taking a positive spin, Walmart CEO and president Doug McMillon noted that more Walmart has gained more customers during the recent highly inflationary period.
Other US retailers have also reported higher-than-usual inventories in Q1 and Q2 for similar reasons. In June, Target announced it was taking measures in Q2 to move through inventory excesses, such as introducing markdowns, removing excess inventory and cancelling orders.
In July, Toy World reported that high stock levels had prompted several leading US multi-category retailers to reappraise their buying strategies, placing a greater emphasis on domestic purchases rather than FOB orders. Target’s actions are alleged to have included asking vendors to pay for transport costs and requiring some to retain more merchandise at their own warehouses, forwarding goods only on an as-needed basis. It was also suggested that, in August, Walmart would begin to charge some of its suppliers new fuel and pickup fees to transport goods to its warehouses and stores.