Retail Stocks: Walmart Dives On Lowered Profit Outlook

Walmart and other retail stocks fell sharply overnight as the Dow Jones discount giant slashed its profit outlook late Monday. Management cited efforts to cut prices and clear unsold products, as customers recalibrate their budgets amid decades-high inflation.

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However, the big-box retailer bumped up its sales forecasts, citing a “heavy mix” of food and consumables, where prices are rising.
Walmart stock tumbled 9% before the open in the stock market today. Shares dipped 0.1% in Monday’s trading.
Among other retail stocks, Target (TGT) fell 5% in premarket trade while Best Buy (BBY) skidded 4%. Dollar Tree (DLTR) and Dollar General (DG), which aren’t exposed to big-ticket discretionary items, still both lost 4%.
Walmart Drags On Retail Stocks
The forecast arrives after Walmart stock and other retail stocks got slammed in May, amid concerns about the retailers’ abilities to manage costs and their inventories of food, clothing and other goods amid shifts in demand.
Walmart said it expected adjusted earnings per share for the full year to fall 11% to 13%, compared with a forecast in May for a roughly 1% drop.
For the second quarter, the big-box retailer forecast an 8%-9% decrease in earnings per share. In May, Walmart said it expected earnings per share to be “flat to up slightly.”
The company, in revising its forecasts, cited “pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S.”
“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,” Walmart said in a statement.
Progress On Inventory, Storage Costs
“During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply-chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers,” the chain said. All are problems that have hung over retail stocks this year.
“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,” CEO Doug McMillon said in a statement.
“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.,” he added.
Walmart said it expected second-quarter net sales growth of 7.5%. That was better than a forecast in May for an increase of “over 5%.” For the full year, Walmart said it expected 4.5% net sales growth vs. expectations for around 4% given in May.
Walmart is scheduled to report earnings Aug. 16.
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