By Tonya Garcia, MarketWatch
Walmart Inc. incurred nearly $900 million in coronavirus-related expenses during the first quarter, and the retail giant says it’s likely that it will spend about the same amount in the second quarter.
Much of the spend, $755 million, went towards bonuses for the company’s workers. Walmart /zigman2/quotes/207374728/composite WMT +0.88% has another bonus slated for its associates at a cost of $390 million.
“[W]e’ve already announced a second round of special bonuses in the U.S. which that will financially hit in the second quarter,” said Brett Biggs, Walmart’s chief financial officer, on the Tuesday morning earnings call, according to a FactSet transcript.
He says some expenses, like those for additional sanitizing and cleaning the stores, will carry on. But the latest round of bonuses already puts the retail giant at about one-third of the $900 million total from last quarter.
“So if the costs were in that ballpark again in Q2, I think that would probably be a fairly reasonable assumption at this point,” he said.
One of Walmart’s biggest rivals, Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +1.25% , has also announced huge COVID-19-related expenses in the coming quarter. In Amazon’s case, the price tag is $4 billion.
Despite the costs, Walmart reported earnings and sales beat expectations. In addition to monster sales in the grocery category, the company was helped by the stimulus checks paid to Americans from the U.S. Treasury which gave other items like TVs, apparel, sporting goods and toys a boost.
“Discretionary categories really popped towards the end of the quarter,” Doug McMillon, Walmart’s chief executive, said on the call.
U.S. same-store sales rose 10%, with food and consumables leading the way. And e-commerce sales skyrocketed a whopping 74% for the quarter.
“We experienced unprecedented demand in categories like paper goods, surface cleaners, and grocery staples,” McMillon said. “For many of these items, we were selling in two or three hours what we normally sell in two or three days.”
With the shift in consumer behavior, McMillon says it’s time to stop calling the pickup and delivery option “online grocery” since it spans across a wide variety of merchandise.
“[I]t’s going to end up being that you can do kind of a really quick pickup or delivery from a store location and it will be inclusive of general merchandise which helps us with mix and also improves the customer experience,” he said. “So our language will probably evolve away from online grocery to just being pickup and delivery, and we’ll talk to you more about what that means in the future.”
For this most recent quarter, food was the most robust category, which hurt margins by more than 100 basis points.