Walmart Slashes Profit Outlook as Inflation Changes How Customers Shop

Walmart Slashes Profit Outlook as Inflation Changes How Customers Shop
A Walmart employee pushes grocery carts at a store in Miami, Fla., on Feb. 19, 2015. Joe Raedle/Getty Images
Katabella Roberts
Updated:

Walmart Inc. has slashed its quarterly and full-year profit outlook, citing rising food and gas prices, which has prompted consumers to cut back on other items like clothing and electronics.

The retailer said in a business update on July 25 that the revised outlook was “primarily due to pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S. and mix of sales.”

Walmart said it now anticipates adjusted earnings per share for the second quarter and full year to decline around 8–9 percent and 11–13 percent, respectively. That is much steeper than the 1 percent fall it previously forecast for the full year.

The retailer also said it now expects same-store sales in the United States to be about 6 percent in the second quarter, excluding fuel.

That’s higher than the 4–5 percent increase that the company previously expected, as customers purchase more food and consumables at its stores.

“Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” Walmart said.

It added that during the quarter, the company had “made progress reducing inventory, managing prices to reflect certain supply-chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers.”

However, it noted that rising food and fuel inflation is now affecting how customers spend their hard-earned cash.

‘More Pressure on General Merchandise’

“While we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” CEO Doug McMillon said in a statement. “We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.”
Walmart reported a 25 percent drop in quarterly earnings in May and warned that it was left with too many unsold goods due to a shift in consumer demand following the COVID-19 pandemic and supply chain issues, something that a string of other big name brands also reported.

As a result, Walmart is now left having to continue adding discounts to inventory that isn’t selling, such as home furnishings and electronics.

Shares of Walmart fell 10 percent after hours on Monday.
The retailer’s announcement also saw shares of other big-named retailers slide, including Target, Amazon, Costco Wholesale Corp, Best Buy, Dollar General, and Dollar Tree.

The announcement also comes as inflation surged to 9.1 percent in June, significantly higher than the Federal Reserve’s target of 2 percent.

Data recently published by research firm IRI found that more American consumers are buying cheaper store brands at supermarkets, as costs for groceries continue to soar, particularly among major food brands.

The Fed is widely expected to announce another 75 basis-point increase at its upcoming policy meeting on July 27.

In addition, Walmart said on Monday that it expected second-quarter net sales growth of 7.5 percent, far better than the 5 percent-plus increase forecasted in May. For the full year, Walmart said it expected net sales growth of 4.5 percent compared with a forecast of 4 percent in May.

Walmart is scheduled to report earnings on Aug. 16.

Bryan Jung and Reuters contributed to this report.
Katabella Roberts
Katabella Roberts
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Katabella Roberts is a news writer for The Epoch Times, focusing primarily on the United States, world, and business news.
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