Walmart and other retail stocks fell after hours on Monday after the company cut its profit outlook. Management cited efforts to cut prices and eliminate unsold products as customers recalibrate their budgets amid decades-high inflation.
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However, the big box retailer raised its sales forecast, citing a “great mix” of food and consumables, where prices are rising.
Walmart shares fell nearly 10% in after-hours trading today. Shares ended down 0.1% in regular trading.
Among other retail stocks, Target ( TGT ) fell 5% and Best Buy ( BBY ) slipped nearly 4% Dollar Tree ( DLTR ) and Dollar General ( DG ), which are not exposed to high-value discretionary items, have yet to they lost 4%.
Walmart drags retail stocks
The forecast comes after stocks in Walmart and other retail stocks tumbled in May amid concerns about retailers’ ability to manage costs and their inventories of food, clothing and other goods amid shifts in demand .
Walmart said it expected full-year adjusted earnings per share to fall between 11% and 13%, compared with a forecast in May of a drop of about 1%.
For the second quarter, the big-box retailer forecast an 8% to 9% decline in earnings per share. In May, Walmart said it expected earnings per share to be “flat to slightly flat.”
The company, in revising its forecasts, cited “price actions aimed at improving inventory levels at Walmart and Sam’s Club in the US.”
“Food inflation is in the double digits and higher than at the end of the first quarter. This is affecting customers’ ability to spend in general merchandise categories and requiring more markdowns to move inventory, particularly apparel,” he said. Walmart said in a statement.
Inventory progress, storage costs
“During the quarter, the company made progress reducing inventory, managing pricing to reflect certain supply chain costs and inflation, and reducing storage costs associated with a container backlog,” the chain said. These are all issues that have hung over retail stocks this year.
“Rising levels of food and fuel inflation are affecting the way customers spend, and while we’ve made great strides in eliminating tough categories, apparel at Walmart USA requires more markdown dollars,” CEO Doug McMillon said in a statement.
“We are now anticipating more pressure on general merchandise in the back half; however, we are encouraged by the start we are seeing in school supplies at Walmart US,” he added.
Walmart said it expected second-quarter net sales growth of 7.5 percent. That was better than May’s forecast of a “more than 5%” increase. For the full year, Walmart said it expected net sales growth of 4.5% versus expectations of 4% around May.
Walmart is scheduled to report earnings on August 16.
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