Starting next month, Walmart, Inc. (NYSE: WMT) plans to charge new fees from some of its suppliers to transport goods to its stores and warehouses, The Wall Street Journal said in a report, citing a company memo. The move comes as the retail giant looks to offset the impact of rising fuel and transportation costs.
The memo said that Walmart will charge the members of its ‘Collect’ program a “collect pickup charge” and a fuel surcharge to transport goods to its stores and warehouses. The fuel surcharge will be calculated on the fuel cost to transport the goods, and the collect pickup charge will be based on the cost of goods Walmart receives.
The decision “is a result of Walmart adapting to the significant transformation and increased cost seen in the transportation industry over the past few years,” the memo said.
The changes “allow us to share cost accountability with our Collect suppliers, helping to enable us to meet our everyday low-price commitment to our customers,” the company said in the memo.
Some of Walmart’s suppliers are not happy with the company’s plan. “This is, for all intents and purposes, a retroactive charge, since many suppliers already have product order agreements in place with Walmart for the coming year,” a Walmart supplier said, according to the report.
On its internal website for suppliers using the ‘Collect’ program, the retailer said suppliers can switch to prepaid shipping, where they arrange and pay for shipping into Walmart’s supply chain.
The shift comes after the Arkansas-based company reduced its 2022 profit guidance in May, due to increasing fuel and labor costs. The company said fuel charges were over $160 million higher than expected.
Further, in June, CEO Doug McMillon said, “We’ve been working really hard on costs, top to bottom, taking action to get our costs down so that the second quarter looks better than the first quarter.”
Wall Street’s Take
Last month, Bank of America Securities analyst Robert Ohmes maintained a Buy rating on the stock with a price target of $160 (28.8% upside potential).
The analyst said, “We continue to see WMT well-positioned in a highly inflationary environment as many shoppers across WMT’s broad customer base will likely continue to favor its variety of value-priced offerings.”
“Walmart has strong sales momentum and its focus on managing costs could boost results in fiscal 2023,” Ohmes added.
Overall, the stock has a Strong Buy consensus rating based on 21 Buys and five Holds. WMT’s average price target of $155.77 implies 25.4% upside potential from current levels. Shares have lost almost 10% over the past year.
Hedge Funds’ Activity on TipRanks
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Walmart is currently Very Negative, as the cumulative change in holdings across all 24 hedge funds that were active in the last quarter was a decrease of 8.1 million shares.
Conclusion
Walmart’s move to charge new fees comes after Amazon decided (NASDAQ: AMZN) to levy an inflation and fuel surcharge of 5% this year on all products transported through its fulfillment service.
Walmart, Amazon and Target (NYSE: TGT) are a part of the retail industry that witnessed a multi-fold increase in sales and profits during the Covid-19 pandemic, as orders for home deliveries reached their all-time high. However, with the easing of restrictions and consumer buying patterns returning to normal, the sales and profits of these retail firms have taken a hit.
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