Walmart Inc. on Tuesday reported a third-quarter loss compared with the same quarter a year ago, but it also noted an 8.7% jump in sales.
The Bentonville-based retailer attributed the loss to the $3.1 billion it said it will pay to settle all lawsuits and potential lawsuits filed by state, local and tribal governments that claim that opioid prescriptions filled by Walmart’s pharmacies caused financial harm to their communities.
CVS Health and Walgreens recently agreed to similar settlements.
In a statement, Walmart said it strongly disputes the allegations and that the settlement doesn’t include an admission of liability.
The quarterly loss of $1.8 billion, or 66 cents per share, compared with a profit of $3.11 billion, or $1.11 per share, a year ago.
The per-share earnings fell short of the average estimate of $1.32 from 29 analysts surveyed by Thomson Reuters. However, adjusted for items such as the opioid settlement and one-time losses, earnings per share were $1.50.
Walmart’s revenue in the quarter, which ended Oct. 31, grew to $152.8 billion, compared with $140.5 billion over the same period a year ago.
Brian Yarbrough, a retail analyst with financial services firm Edward Jones, said investors weren’t fazed by what they see as one-time costs.
The drop “is not a direct result of operations, and that’s what most investors are focused on,” Yarbrough said.
“Sales were higher at Walmart U.S., inventory levels came down,” Yarbrough said. “They’re adding sellers and items to the marketplace, and consumer spending is pretty solid.”
Some of that spending comes from higher-income shoppers looking to save money as inflation eats into their pocketbooks, Yarbrough said. That helps make up for reduced spending by lower-income consumers, he said, though that trend may shift back when inflation starts to ebb, “hopefully as we move into 2023.”
“It wasn’t a blowout quarter by any means,” Yarbrough said. “But it was a much better quarter than they had projected.”
Emerson Delgado, a consulting manager at McMillanDoolittle, said that besides strong sales growth, a couple of “key bright spots” indicate strong fundamentals as Walmart heads into the Christmas shopping season.
Like Yarbrough, Delgado said U.S. consumers, even more affluent ones, see Walmart as “one of the go-to destinations during tough economic times, which will continue benefiting their sales as long as inflationary conditions and concerns persist.”
“The same conditions are likely responsible for Sam’s Club’s better-than-expected sales,” Delgado said.
He also cited solid growth in e-commerce, global advertising and international business, “which are all important growth drivers.”
“Overall,” Delgado said, “the higher-than-expected topline numbers suggest people are increasingly turning to Walmart during a difficult economic period.”
Walmart released its earnings report before the markets opened, and its stock price rose throughout the trading day. It reached the day’s high of $150.27 around 11 a.m.
The shares closed Tuesday at $147.48, up $9.09, or 6.57%, on the New York Stock Exchange. The stock has traded between $117.27 and $160.77 in the past year.
Carol Spieckerman, a retail consultant and president of Spieckerman Retail, said Walmart’s “highly diversified platform” helped it lock in an impressive performance despite multiple challenges.
“Solutions and services have emerged as Walmart’s stealth power plays,” Spieckerman said. “Its global advertising business continues to rack up impressive gains, and marketplace expansion is the sprinkles on top.”
All three retail experts addressed Walmart’s excess inventory, a problem that’s plagued most retailers this year. Doug McMillon, Walmart’s president and chief executive officer, said in a conference call with investors that the company’s inventory was down to about 13% higher than at this time last year, compared with August when its inventory level was 25% higher than in August 2021.
The retailer has said it’s clearing excess merchandise through rollbacks and everyday low prices.
“Walmart was smart to take major measures to reduce inventory in advance of the holiday shopping rush,” Spieckerman said. “Even so, the ripple effects could carry into 2023.”
“Extreme discounting sets a pricing standard with shoppers that will be difficult to equalize,” she said. “Walmart’s cancellation of billions of dollars’ worth of orders will also cause disruptions for suppliers.”
Delgado agreed that inventory positions are much better than they were last quarter.
“Walmart has done a great job at this, greatly reducing inventory heading into the promotional holiday period,” he said.
“Clearance activities of course hurt margins,” Delgado said, “but in this case, taking the action sooner is better than later.”
In third-quarter results by unit, Walmart’s U.S. division, by far its largest, posted net sales of $104.8 billion, up 8.5% from the same period a year ago.
The quarter saw robust seasonal event sales, especially in back-to-school classroom essentials and Halloween costumes, candy and home decor.
Sales at stores open at least a year, excluding fuel, increased 8.2%. Such sales, also called same-store sales or comp sales, are considered a key indicator of a retailer’s health.
Comp sales were driven by strong food and private brand sales, and reflect higher average ticket and store transactions.
While grocery sales continued to gain market share, general merchandise sales kept sliding. The slowest categories included electronics, home and apparel, but sales were stronger in lawn and garden, automotive and back-to-school items.
The unit’s e-commerce net sales grew 16%.
Walmart International’s net sales rose 7.1%, to $25.3 billion.
Judith McKenna, the unit’s chief executive officer, said in the conference call that having Flipkart’s Big Billion Days sales event fall in the third quarter instead of the usual fourth quarter helped reduce inventory growth.
The unit’s e-commerce sales made for 23% of its total net sales.
Of the international division’s top three markets, Walmart’s operations in Mexico and Central America, typically referred to as Walmex, led with 12.9% net sales growth and 11.7% comp sales.
China showed strong growth in Sam’s Club and e-commerce. Net sales were up 6.9%; comp sales rose 5.6%; and e-commerce net sales grew 63%.
Walmart Canada’s net sales gained 5.5% over the previous year, with comp sales up 5.2%. As in other markets, sales in food and consumables outpaced those in general merchandise. E-commerce net sales grew 3%.
At Sam’s Club, Walmart’s warehouse club division, net sales including fuel climbed 12.8% to $21.4 billion. Same-store sales, excluding fuel, increased 10%.
Sam’s Club’s e-commerce net sales grew 20%, with strong contribution from both curbside pickup and ship-to-home services. Its membership income grew 8%.
Chief Financial Officer John David Rainey said in the conference call that Walmart returned $4.5 billion to shareholders through dividend and share repurchases.
Rainey also said the company’s board of directors just approved a new $20 billion share repurchase authorization that it expects to use over the next few years.
A replay and transcript of Tuesday’s presentation and conference call with investors are available at http://corporate.walmart.com/newsroom/financial-events.