Walmart’s customers may soon be seeing higher prices in their stores as it struggles to cope with the rising cost of new tariffs.
As tariffs begin to affect its supply chain, the company has announced that some products will be priced higher this month as well as into early Summer.
Walmart’s Chief Financial Officer John David Rainey stated in an interview that the magnitude and pace at which prices were being brought to consumers was unprecedented.
The retail market is still dynamic and, while the sales have risen in the last quarter, tariffs are only now beginning to impact consumers.
Following the news, Thursday’s stock price of the company fell almost 4%.
Walmart sales: growth despite inflation concerns
Walmart announced a 4,5% rise in US comparables sales during the third quarter. This exceeded Wall Street’s expectations.
This growth is a result of both the in-store channels and the digital ones. The company’s global e-commerce sales have increased by 22%.
Sales continue to grow despite inflationary fears weighing on consumer confidence.
The performance is reflected in a dynamic macroeconomic background.
Markets fluctuated sharply in March and April and consumer confidence dropped.
Walmart has benefited, however, from the continued demand for household and grocery items. More affluent families are also shopping at Walmart for its value-added offerings.
Rainey said that “our customers remain cautious” and noted the inflationary pressures in areas like groceries and child care.
Walmart stands firm on its essentials despite tariff-forced price hikes
The impact of the recent US tariff reduction on Chinese imports remains substantial, even though the US has recently reduced the tariffs from 145% on to 30%.
Rainey stated that even at a lower rate the tariff of 30% creates significant price increases.
Walmart already passes on some of the costs to its customers.
Bananas are gaining in price. They went from being a 50-cent item to 54-cents pound.
Food tariffs against countries such as Costa Rica, Peru and Colombia also affect other imported products, including avocados, coffee and fresh flowers.
Walmart has tried to soften the blow.
Doug McMillon, the chief executive of McMillon Foods Inc. said that the company would do everything possible to keep prices low on consumables and food items even when general merchandise costs increase.
He said that he wanted to reduce the price of food and other consumables as much as possible, noting his efforts to manage costs and limit food wastage.
Walmart’s profit and sales projections for the full year remained unchanged despite the increasing input costs. This reflects its confidence that it can navigate its environment.
McMillon said that in order to remain competitive, the company might absorb certain costs.
Investors: Expect large fluctuations in earnings and quarterly margin: CFO
Retail giant warns investors, though, to be prepared for significant changes to its earnings and profit margins from quarter-to-quarter, due to sharp and unpredictability in the inventory cost.
In a conference call with analysts Rainey stated that tariffs-related increases in costs could lead to higher goods prices, but any future cost decreases would force Walmart to markdown excess inventory.
Rainey states that “the magnitude of the swings in both directions, positive or negative, is unprecedented for our business, considering the additional costs we could apply to the stock that we are purchasing at this time.”
Investors should focus on the long-term results of the business, not just the short-term fluctuations.
Rainey said that Walmart has prepared for a variety of outcomes, as the global trade talks progress.
According to the company, the likely outcome is the conclusion of bilateral agreements with the US trading partners that will bring tariffs down.
Walmart will meet both its sales and profit targets for the full year if this scenario is realized.
Rainey cautioned that Walmart could be hit hard by a significant financial blow if President Trump reinstates the tariffs he had previously proposed.
He said that if this outcome were to occur, it would put the ability of retailers to increase profits in 2019 at risk.
The post Walmart passes on tariff burden of shoppers and braces for margin volatility, may be updated as new information unfolds.
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