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Walmart lowering profit outlook for fiscal second quarter as shoppers adapt to inflation

NEW YORK — Walmart Inc. cut its second-quarter and full-year earnings outlook on Monday, saying rising food and gas prices are forcing shoppers to cut back on higher-margin discretionary items, particularly apparel.

That behavior is forcing the nation’s largest retailer, based in Bentonville, Arkansas, to increase discounts on general merchandise such as home furnishings and electronics to move inventory.

Walmart shares fell nearly 10% in after-hours trading Monday.

Walmart’s move to cut its mid-quarter earnings outlook is rare and raised concerns about how inflation, the highest in 40 years, is affecting the entire consumer sector. Shares of several major retailers, including Target, Macy’s and Kohl’s, fell after Walmart’s announcement on Monday. Several major consumer companies, including Amazon, McDonald’s and Procter & Gamble, are set to report their quarterly earnings results this week.

The warning follows reports by Walmart, Target and other retailers in May that a faster-than-expected shift away from shoppers on items that were popular at the height of the pandemic, such as casual wear and home goods, has left them with much-needed extra inventory. for further discount.

“As the nation’s largest retailer, Walmart is a bellwether for the entire industry,” said Neil Saunders, CEO of Walmart. GlobalData Retail in a report. “Its downgrade for the second quarter and full fiscal guidance is cause for concern and highlights the pressure all retailers are under today.”

The news from Walmart comes as the Federal Reserve is set to announce another hefty rate hike on Wednesday. Along with its previous rate hikes, the Fed’s moves will make borrowing more expensive for individuals and companies and likely weigh on the economy over time.

Walmart said its U.S. division is expected to report comparable sales, excluding fuel, to rise 6 percent. That’s higher than previously expected, but the mix is ​​weighted more toward lower-margin food staples and consumer staples. Walmart is set to report fiscal second-quarter results on August 16.

“Rising levels of food and fuel inflation are affecting how customers spend,” said Walmart CEO Doug McMillon.

The government’s consumer price index rose 9.1 percent in June from a year earlier, the biggest annual increase since 1981, with nearly half of the rise due to higher energy costs.

As of Monday, the average price of gasoline has fallen to $4.35, down from $4.90 a month ago, but is still well above $3.15 a year ago.

McMillon said Walmart expects more pressure on general merchandise in the second half of the year. But Walmart said it was encouraged by early signs of back-to-school supply sales.

Walmart said that during the second quarter, the company made progress in reducing inventory, managing prices to reflect some supply chain costs and inflation, and reducing storage costs associated with stacking shipping containers.

“Customers are choosing Walmart to save money during this inflationary period, and that’s reflected in the company’s continued growth in grocery market share,” the company said.

As a result, adjusted earnings per share for the second quarter and full year are expected to decline approximately 8% to 9% and 11% to 13%, respectively. Excluding divestitures, full-year adjusted earnings per share are expected to decline 10% to 12%.

Copyright © 2022 by The Associated Press. All rights reserved.

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Walmart lowering profit outlook for fiscal second quarter as shoppers adapt to inflation Source link Walmart lowering profit outlook for fiscal second quarter as shoppers adapt to inflation

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