Walmart issues earnings warning as rising inflation hits customers

Walmart issued its second earnings warning in 10 weeks, signaling a further deterioration in US retail conditions as inflation hits price-sensitive consumers on which the world’s largest retailer depends.

“Rising levels of food and fuel inflation are impacting how shoppers spend,” said Doug McMillon, chief executive of Walmart. He said the company has made “good progress” clearing stock in “hard” or consumer durables categories such as appliances and furniture, but has had to increase apparel discounts at its U.S. stores.

In a statement issued after the close of trading in New York — just three weeks before the company is due to report earnings three months before July — walmart warned that its operating profit would fall 13% to 14% in the quarter and 11% to 13% for the full year as the company makes discounts on merchandise to get rid of excess inventory.

In May, during the latest earnings announcement, it was noted that operating income would remain “flat or slightly up” in the second quarter and decline by just 1% for the full year. The company gave a similar forecast for earnings per share, which now expects to fall 8-9% in the second quarter and 11-13% for the full year on an adjusted basis.

Walmart’s warning sent its stock down 9% to $120.05 after business hours and sent competitors including Target, Costco and Home Depot selling off. Amazon shares fell more than 4%.

In May, Walmart shares suffered their biggest one-day drop since 1987, when the company cut its forecast for the coming quarters for the first time.

Investors are increasingly concerned that retailers will have to discount unsold items as price increases and spending shifts from merchandise to services coincide with efforts by stores to ship holiday merchandise earlier to avoid a crisis. supply chain disruptions that plagued the sector earlier during the coronavirus pandemic.

Walmart said like-for-like sales at its U.S. stores will be higher than previously expected by 6% in the second quarter excluding fuel, although this reflects higher food spending, where inflation is currently operating in double digits and the company is earning a lower rate of return.

“This affects the ability of customers to spend money on general categories of goods and requires additional markdowns to move through inventory, especially clothing,” he warned.

Walmart said it “made progress on reducing inventory” in the second quarter and is “managing prices” to reflect inflation and higher supply chain costs. McMillon added that he was also encouraged by the start of the school season, but warned that he now expects “more pressure” on regular goods sales in the second half of the year.

Like other US multinationals, Walmart is also suffering from a strong dollar that has resulted in a headwind of about $1 billion on its sales in the second quarter. Based on current exchange rates, the currency is expected to reach $1.8 billion in the second half of the year.