Walmart issues profit warning as soaring inflation hits customers
Walmart issued its second profit warning in 10 weeks, signaling a sudden deterioration in the U.S. retail environment as inflation bites the price-sensitive consumers the world’s biggest retailer depends on.
“Rising levels of food and fuel inflation are affecting how customers spend,” said Doug McMillon, Walmart’s chief executive. He said the company had made “good progress” eliminating inventory in “hardlines” or consumer durables categories – such as appliances and furniture – but needed to increase markdowns on clothing in its American stores.
In a statement after markets closed in New York – just three weeks before the company is due to report results for the three months to June – Walmart warned that its operating profit would fall 13-14% over the course of the year. quarter and 11-13% for the full year as it cuts merchandise to eliminate excess inventory.
In May, when it last announced results, it reported that operating profit would be “flat to slightly up” in the second quarter and down just 1% for the full year. He had given similar guidance for earnings per share, which is now expected to fall 8-9% in the second quarter and 11-13% for the full year on an adjusted basis.
Walmart’s warning sent its shares tumbling 9% to $120.05 in after-hours trading and sparked a sell-off in shares of rivals including Target, Costco and Home Depot. Amazon shares fell more than 4%.
In May, Walmart shares suffered their biggest one-day drop since 1987, when it first cut its forecast for future quarters.
Investors are increasingly concerned that retailers will have to discount unsold products as rising prices and a shift in spending from goods to services coincide with stores’ efforts to bring in holiday merchandise early to help keep things moving. to avoid the supply chain disruptions that plagued the sector earlier in the coronavirus pandemic.
Walmart said same-store sales at its U.S. stores would be higher than expected, up 6% in the second quarter excluding fuel, although that reflected higher food spending, where inflation is now in double digits and the company achieves lower profit margins. .
“This affects customers’ ability to spend in general merchandise categories and requires more markdowns to browse inventory, especially apparel,” he warned.
Walmart said it had “made progress in reducing inventory” in the second quarter and was “managing pricing” to reflect inflation and rising supply chain costs. McMillon added that he was also encouraged by the start of the new school year, but he warned that he now expects “more pressure” on general merchandise sales in the second half.
Like other U.S. multinationals, Walmart is also suffering from the strong dollar, which resulted in a “headwind” of about $1 billion to its second-quarter sales. Based on current exchange rates, he expects a currency impact of $1.8 billion in the second half.