Walmart shares fall as inflation takes its toll

Walmart Inc. fell the most in two years after cutting its profit outlook due to inflationary pressures, especially in food and fuel. The retail giant now sees earnings per share falling by about 1% this year, compared with a prior view of mid-single-digit gains, Walmart said in a statement Tuesday. Adjusted profit fell to $1.30 a share during the first quarter ended in late April. That trailed the $1.48 average of analyst estimates compiled by Bloomberg. Subscribe to Ad Age now for award-winning news and insight. The Bentonville, Arkansas-based company, which for decades has championed “everyday low prices,” is vying for more customers as inflation pushes shoppers to look harder for bargains. But higher costs for merchandise, transportation and labor pose a growing threat to profitability. That’s raising the stakes as Walmart must decide how much of those costs they will pass along to consumers. Walmart reported its global ad revenue was up 30% over a year ago, but that wasn't enough to relieve the profit pressure. “US inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected,” Walmart CEO Doug McMillon said in the statement. “We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.” Unique Perspective The shares sank 8.5% in early trading at 9:31 a.m. New York time, their biggest drop since March 2020. Walmart had gained 2.4% so far this year through Monday, bucking a selloff of US stocks. Fuel costs accelerated faster last quarter than Walmart was able to pass along to consumers through higher prices, McMillon said on a conference call with analysts. He also called out labor challenges and temporary overstaffing due to Covid, higher costs for containers and storage, excess inventory, and a shift in spending away from general merchandise, which typically has higher profit margins than groceries. For the current quarter, Walmart said it now expects earnings to be “flat to up slightly” compared with a prior view of a low- to mid-single-digit increase. The disappointing performance underscores the pressure on US consumers as soaring prices send sentiment to the lowest in a decade. Walmart and other retailers are also contending with the lack of government stimulus payments after benefiting in early 2021 from an injection of federal spending to help households weather the coronavirus pandemic. Walmart’s size gives it a unique perspective on the US economy, and analysts pressed the company for insight on whether shoppers are pulling back their spending as they get squeezed by the highest inflation in four decades. The retailer said it’s seeing some consumers switch to cheaper private-label brands in the grocery, but at the same time, there’s growing demand for some high-end items like video-game consoles. Register for Ad Age's special report newsletter to receive updates on the Upfronts and other big events McMillon said Walmart will raise prices while seeking to stay below its competitors. The company will try to limit price hikes on entry-level food items, the CEO said. “Price leadership is especially important right now,” he told analysts. Same-store sales at US Walmart stores rose 3% in the quarter, excluding fuel, topping analyst estimates for 2% growth. Revenue climbed 2.4% to $141.6 billion, while Wall Street had expected $139.1 billion. Walmart’s revenue gains are consistent with new government data released Tuesday showing that US retail sales grew at a solid pace in April despite rising prices. For the full year, Walmart raised its forecast for same-store sales growth at US Walmart stores to about 3.5%, up from a prior view of “slightly above 3%.” The retailer is also trying to develop businesses in digital advertising, financial services and health care, and it’s investing heavily in online sales. E-commerce grew 1% in the quarter. The online business got a substantial boost during pandemic lockdowns, but demand has been slowing as shoppers venture back into stores. —Bloomberg News

Walmart shares fall as inflation takes its toll

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