Walmart cut its profit outlook on Monday as rising inflation is causing shoppers to cut back on higher-margin items as they grapple with increased prices for gasoline, groceries and other staples.
The world’s largest retailer now expects a double-digit decline in operating income for both the second quarter and full year, after previously forecasting the potential for a modest increase for the second quarter and a decline of about 1 percent for the year.
However, not all of the recent numbers were downgrades from Walmart’s guidance.
The company now expects second-quarter comparable sales growth of 6 percent for US stores, a slight improvement from its previous guidance, which reflected strong sales of groceries and consumables.
That shift has come at the expense of other product categories, however, with the chain citing apparel as a particularly weak area where it has slashed prices to offload goods.
“Rising food and fuel inflation is affecting customer spending, and while we’ve made good progress eliminating hardline categories, apparel at Walmart US requires more discount dollars,” said Chief Executive Doug McMillon.
“We now expect more pressure on general goods in the back half.”
Walmart’s announcement reflects the reality that profit margins on groceries are “far lower” compared to other commodities, said GlobalData Retail analyst Neil Saunders.
The big chain has grappled with higher labor and freight costs during the pandemic, but “hasn’t fully passed on those costs, which is affecting its profitability,” Saunders said.
“We believe this is a trend that is continuing: Most retailers are struggling not to grow their sales, but they are struggling to maintain the high levels of profitability that have been commonplace for the past several years.”
Walmart shares fell 8.8 percent to $120.38 in after-hours trading.
#Walmart #lowers #earnings #outlook #inflation #bites #shoppers
