Walmart still worried about inflation as it begins automation push

Walmart on Wednesday said inflation would continue to pressure its business this year, and that it would slow its pace of hiring as it builds out automation technology amid a tight labor market.

“We believe, over time, the number of associates will grow, but at a slower pace than in the past as we complement people growth with technology and automation,” Chief Financial Officer John David Rainey said at the company’s investor meeting in Tampa, Fla.

Rainey’s comments come after the retailer on Tuesday said it expects about 65% of its stores to be serviced by automation within three years. The company does not anticipate any near-term layoffs besides the ones it has announced already.

Reuters reported last month that the company was letting go of hundreds of workers at at least five facilities that fulfill orders placed on Walmart.com.

Automation will also help the company prevent inventory build-up, which happened last year when food and gas prices sharply increased and consumers cut back on other purchases.

Automation will “get us closer to inventory optimization than ever before,” CEO Doug McMillon said.

The company, which has more than 5,000 US stores, also stuck to its April quarter, full-year, and three- to five-year forecast of generating 4% sales growth and more than 4% operating income growth.

Rainey said Walmart was at an inflection point as the investments it makes in alternative revenue streams, including advertising, fulfillment services and membership programs, start making higher contributions to profitability over the next five years compared to its core brick-and-mortar retail business.

“(With the investments) We think the opportunity for operating income growth over the next three to five years could be better than what we’ve outlined.”

“While some investors may have been hoping for an increase (in the forecast), we see the reiteration as favorable, and potentially still leaving some room for upside with a month to go (in the quarter),” D.A. Davidson analyst Michael Baker said.

More than 56% of Walmart’s sales come from groceries, where inflation has been the fiercest.

Labor Department for February shows that food prices in the US were up 9.5% compared to the same time a year ago.

Executives said that Americans continue to reach for private-label brands over national brands — a shift that has helped Walmart’s private-label business to account for more 20% of its total sales of over $600 billion.

Walmart shares were up 1.5%.