Inflation Bites: Walmart Falls 9% After Cutting Earnings Outlook By 13%

Weeks ahead of its Q2 earnings release, Walmart Inc. (NYSE: WMT) announced a huge cut on its earnings guidance, proving yet another windfall of the rising commodities prices.

The retail giant is slashing its adjusted earnings per share by 11% – 13% in the current fiscal year and 8% – 9% for the second quarter.

“Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” the company said in its statement.

Following the announcement, Walmart saw its share price slump by as much as 9% in pre-market trading.

The firm is also expecting declines in operating income by 11% – 13% for the fiscal year and 13% – 14% for the second quarter.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.,” said Doug McMillon, Walmart Inc. president and chief executive officer.

Currency valuation is also expected to affect the company’s sales, as headwinds from foreign exchange rates can reach up to US$1 billion for the second quarter and US$1.8 billion for the fiscal year.

The grim earnings outlook is set against the backdrop of the country’s four-decade high inflation rate, capping last month at 9.1%.

“When things go wrong at Walmart, you can extrapolate that it’s happening at other retailers, as well,” said GlobalData’s Neil Saunders. “This will potentially send shock waves through the sector.”

However, the retail company is guiding net sales growth for the second quarter to be around 7.5% and for the full-year at around 4.5%, higher than the last quarter’s annual revenue growth of 2.31%.

Walmart last traded at $121.08 on the NYSE.

Information for this briefing was found via Bloomberg and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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