Walmart issued its second earnings warning in 10 weeks, signaling a further deterioration in the US retail environment as inflation bites the price-sensitive consumers on which the world’s largest retailer depends.
“Increasing levels of food and fuel inflation are affecting how customers spend,” said Doug McMillon, CEO of Walmart. He said the company had made “good progress” in clearing inventory in “tough” or durable categories for consumers – such as appliances and furniture – but had had to ramp up massive writedowns on clothing in its US stores.
In a statement issued after New York trading closed — just three weeks before the company was scheduled to report earnings for the three months through July — Walmart The company warned that its operating income will decline by 13-14 percent in the quarter and by 11-13 percent over the full year as it discounts merchandise to liquidate excess inventory.
In May, in its latest earnings announcement, it indicated that operating income would be “flat-up a little bit” in the second quarter and fell just 1 percent for the full year. It gave similar guidance for earnings per share, which it now expects to fall 8-9 percent in the second quarter and 11-13 percent for the full year on an adjusted basis.
Walmart’s warning sent its stock down nearly 10 percent to $118.97 in after-hours trading, slashing its market value by nearly $35 billion. That led to competitors including Target, Costco and Home Depot selling shares, with Amazon shares down more than 4 percent.
In May, Walmart shares suffered their biggest one-day decline since 1987 when it cut its next-quarter guidance for the first time.
Investors are increasingly concerned that retailers will be forced to discount unsold products as price hikes and a shift in spending from goods to services coincide with stores’ efforts to bring in holiday items early to avoid Suppliers The turmoil that confused the sector earlier in the coronavirus pandemic.
“We’re seeing this rotation of spending away from retail, and we’re seeing a slowdown in spending as consumers come under pressure from higher inflation and higher rates,” said Greg Daco, chief economist at EY-Parthenon. “This pressure is likely to continue.”
James Knightley, ING’s chief international economist, added that weak demand in the face of such pressures could force retailers to offload unsold shares and accept lower profit margins. “While it’s not good news for businesses, it may help the Fed out as it tries desperately to bring inflation back toward [its target] 2 percent.”
Walmart said similar sales at its US stores would be higher than previously expected, up 6 percent in the second quarter excluding fuel, although this reflects higher spending on food, as inflation It now operates in double digits and the company is making lower profit margins.
“This affects customers’ ability to spend on general merchandise categories and requires more extensive write-offs to move through inventory, particularly apparel,” she warned.
Walmart said it made progress in reducing inventory in the second quarter and was “managing prices” to reflect inflation and higher supply chain costs. McMillon added that he was also encouraged by the start of the back-to-school season, but cautioned that the company expects more pressure on general merchandise sales in the second half of the year.
Like other US multinationals, Walmart is also suffering from a stronger dollar, which led to a “headwind” of nearly $1 billion in sales in the second quarter. Based on current exchange rates, you expect the coin to reach $1.8 billion in the second half of the year.