Walmart lowers profit forecast as inflation hits customers

Walmart lowered its earnings outlook on Monday, saying inflation is pressuring customers to make fewer general merchandise purchases and focus on necessities like groceries.

Walmart, the nation’s largest retailer, said it expected full-year operating profit to fall as much as 13 percent as the company is forced to continue to mark down unsold inventory.

Another factor dragging down profits: More Walmart sales come from its less profitable grocery business rather than from higher-margin departments like electronics and apparel.

The announcement, which was made after the stock market closed and a few weeks before the company reports second-quarter earnings, is yet another sign of how inflation is hurting consumers and upsetting businesses. The Federal Reserve is preparing this week to announce its latest interest rate hikes to tame inflation, which has reached the highest levels in four decades.

“Rising levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress weeding out hardline categories, apparel at Walmart US requires more discount dollars,” he said. Walmart CEO Doug McMillon in a statement.

Walmart’s share price slumped more than 9 percent in after-hours trading, after ending the regular trading day only slightly in the red, down 0.1 percent. Shares of other major retailers, including Target, also fell after hours.

Retailers have been battling rising inventory levels since the spring, when customers began cutting back on discretionary spending. Last month, Target also warned that its profits would be lower due to inventory markdowns.

Initially, many companies attributed the excess product on their shelves to shipping delays that caused seasonal items to arrive late, after demand for them had faded. But, as inflation, particularly food and gasoline prices, have continued to rise since the spring, it has become clear that consumers are holding back on certain purchases.

The inventory woes at retailers follow nearly two years of strong sales and profits during the pandemic, when consumers, flush with government checks, were loading up on home improvement and electronics.

The earnings warning is a banner moment for Walmart, which even before the pandemic had been steadily increasing its profits as it expanded its online presence and redesigned its store network.

The inventory challenges Walmart and other retailers have faced in recent months show how quickly inflation has taken hold of the economy and why the Federal Reserve is expected to move aggressively this week to try to rein it in.

On Monday, Walmart said it had “made progress in reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with shipping container buildups.”

Despite inflationary pressures, Walmart said it expected its total second-quarter sales to rise 6 percent. But, because the company was selling more food and other groceries, it would nonetheless post lower profits.

The company said it expected earnings per share for the second quarter to decline as much as 13 percent and as much as 8 percent for the full year.

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