Walmart cut its quarterly and annual profit guidance on Monday, saying inflation is causing shoppers to spend more on necessities like food and less on items like clothing and electronics.
This shift in spending has left more items on store shelves and in warehouses, forcing the retailer to aggressively mark down items customers don’t want.
The big-box retailer said it now expects second-quarter and full-year adjusted earnings per share to decline by about 8% to 9% and 11% to 13%, respectively. They were previously expected to be flat to rise slightly in the second quarter and fall 1% for the full year.
Inflation has grown at the fastest rate in four decades. As consumers face higher prices at the gas pump, grocery stores and restaurants, some consumers are choosing where to spend their money and where to retire. In some cases, they are prioritizing experiences that were missed during the pandemic, such as splurging on a vacation or dining out.
Walmart said more customers are turning to its stores, known for low prices, to fill their pantries and refrigerators, but they’re skipping the general merchandise they can live without.
Walmart said it now expects U.S. same-store sales to rise about 6% in the second quarter, excluding fuel, as customers buy more food at its stores. That’s higher than the 4% to 5% increase the company had previously expected.
However, this mix of goods will weigh on the company. Groceries have lower profit margins than discretionary items such as televisions and clothing.
“Rising levels of food and fuel inflation are affecting the way customers spend, and while we’ve made good progress eliminating hard categories, apparel at Walmart USA requires more markdown dollars,” said the CEO Doug McMillon in a press release.
He said the company is experiencing strong back-to-school sales in the US, but expects people to pull back on general merchandise purchases in the second half of the year.
Target also lowered its forecast for the second quarter. Last month, the retailer said its profit margins would take a hit as it canceled orders and reduced merchandise. The company largely attributed the revised forecast to having too much inventory, including many bulky items such as small appliances that saw a drop in demand.
Walmart shares fell more than 9% after hours. It also dragged down the stocks of other retailers, including Target, which fell more than 6%. Amazon fell more than 4%. Macy’s, Kohl’s and Nordstrom each fell more than 3% after hours, as investors looked to sell off stocks that sell mostly apparel and home goods. The gap narrowed to around 2%.
Read the full statement here.
– CNBC’s Lauren Thomas contributed to this report.
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