Walmart's Q2 Performance Hit By $450 Million In Liability Claims — Just 'Noise In Our Numbers,' Says CEO Doug McMillon - Walmart (NYSE:WMT)

Retailer Walmart Inc. WMT says its second-quarter results were hit by unexpected legal and liability-related issues to the tune of $450 million, weighing on the company’s performance.

Claims Costs Rise Across The Industry

During its second-quarter earnings call on Thursday, Walmart CEO Doug McMillon justified the company’s operating income coming in well below estimates, laying the blame on a surprise rise in legal and liability expenses.

“This is below what we expected going into the quarter as we absorbed a headwind of 560 basis points for the expenses related to general liability claims,” he said.

The company’s CFO, John Rainey, went into the details on this, saying, “This expense pertains to general liability and workers’ compensation claims for which we self-insure.” Rainey notes that the number of claims has decreased year-over-year, while “the cost to resolve claims has risen, both for us and across the retail industry.”

This, he says, led to $450 million in additional expenses during the quarter, “which equates to a headwind of 560 basis points to adjusted operating income growth in the quarter.”

Rainey said the company has already absorbed $730 million of incremental claims-related expenses in the first half of the fiscal year. “Unexpected costs are part of managing a business of this complexity,” he said.

Just ‘Noise In Our Numbers’

McMillon, however, urges investors to look at the broader business, beyond just these numbers. “It's disappointing that we have some noise in our numbers this quarter, but when you get past it and see all the things that are happening, I think you'll feel the same way,” he said.

Walmart maintained its annual operating income guidance, pointing to continued growth in e-commerce, membership and advertising. “The model we’re building gives us more price and wage flexibility, and it also means we’re better positioned when unusual items come our way,” McMillon said.

The company released its second-quarter results on Thursday, reporting $177.40 billion in sales, up 4.8% year-over-year, coming in ahead of consensus estimates at $176.16 billion. Earnings, however, stood at $0.68 per share, falling short of estimates at $0.74.

Walmart shares were down 4.49% on Thursday, closing at $97.96, but are up 0.05% after hours. The stock does well in Benzinga’s Edge Stock Rankings, scoring high on Momentum, Growth and Quality, with a favorable price trend in the short, medium and long runs.