Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Walmart sees smaller annual profit drop as discounts draw inflation-hit shoppers

Economy Aug 16, 2022 02:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A shopper leaves a Walmart store in Bradford, Pennsylvania, U.S. July 20, 2020. REUTERS/Brendan McDermid/File Photo
 
COST
+2.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WMT
+1.65%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TGT
+4.98%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Uday Sampath Kumar and Siddharth Cavale

(Reuters) -Walmart Inc said inflation-weary shoppers continued to buy groceries at its stores in the most recent quarter, though many held back from purchasing other merchandise despite steep discounts on apparel, electronics and home goods.

The company nudged up its annual profit forecast on Tuesday, partly reversing a hefty cut less than a month ago. Walmart (NYSE:WMT) shares, which have fallen by more than 8% this year, rose 5% in morning trading. Shares of rivals Target Corp (NYSE:TGT), Costco (NASDAQ:COST) and Best Buy also climbed by 1% to 3% on the news.

Walmart said it now expected fiscal 2023 adjusted earnings per share to fall 9-11%. Last month, the top U.S. retailer spooked markets across the globe when it forecast a drop of 11-13% - down from previous guidance for a 1% fall - and warned consumers were pulling back on discretionary purchases at a far greater pace than feared as soaring inflation hit their spending power.

Walmart said it slashed prices on clothing and other merchandise to help clear inventory valued at more than $61 billion at the end of the first quarter. Walmart reported inventories of $59.92 billion at the end of the second quarter to July 31, 25% above last year's level.

Walmart's Chief Financial Officer John David Rainey said on Tuesday that electronics, home items and clothing were "problem areas" for the retailer where it had work to do reducing stock.

TRADING DOWN

Financial markets are on tenterhooks over signs U.S. inflation could be easing, which might allow the Federal Reserve to slow interest rate hikes and limit the economic pain. The consumer price index rose 8.5% in July, less than in the previous month, due largely to a 17% drop in gasoline prices.

But Walmart said it was too early to tell whether food price inflation in the third quarter would be different from the double-digit rate of the second quarter. Shoppers are putting fewer items in their cart and buying more private-label food products, where growth doubled in the second quarter from the first, Rainey said.

"Instead of buying maybe deli meats or beef, they're trading down to things like canned tuna, chicken and, even, beans. We're seeing the same thing in the quantity, where they're trading down for smaller pack sizes that are more affordable. So instead of buying 12 items to buy six items in a pack," he said.

Back-to-school shopping gave Walmart's sales a boost at the end of July, but many parents opted for school supplies instead of clothing.

Surging inflation also drove many mid-to-high income customers to Walmart, mainly to its online business, CEO Doug McMillon said. But they too favored purchases of groceries rather than other merchandise, on which Walmart tends to have a higher profit margin.

"We expect inflation to continue to influence the choices that families make, and we're adjusting to that reality," McMillon said on an investor call.

KEEPS H2 SALES VIEW

Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group, said Walmart reported "a modestly positive quarter" given high inflation. Total revenue rose 8.4% to $152.86 billion, beating analysts' average expectation of $150.81 billion, according to IBES data from Refinitiv.

While higher food prices drove average bills and boosted same-store sales at Walmart's U.S. stores up 6.5%, its higher discounting of general merchandise bit into profits. Operating income fell 6.8% to $6.85 billion in the quarter.

The Bentonville, Arkansas-based retailer now expects consolidated net sales growth of about 5% and adjusted earnings to decline 9-11% in the third quarter.

Walmart kept its forecast for 3% same-store sales growth for the rest of the year. "Walmart maintained its outlook for the second-half of the year - an indication that, even with lower gas prices, consumers are still looking at buying less and cheaper on their weekly shopping trips, Jefferies analyst Stephanie Wissink said.

Walmart sees smaller annual profit drop as discounts draw inflation-hit shoppers
 

Related Articles

China Vanke Unit Onewo Slumps 8% in Hong Kong Debut
China Vanke Unit Onewo Slumps 8% in Hong Kong Debut By Investing.com - Sep 28, 2022

By Ambar Warrick  Investing.com-- Shares of Onewo Inc (HK:2602), the property management unit of China Vanke Co Ltd (HK:2202), tumbled in their Hong Kong debut amid weak risk...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email