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Walmart Falls After Cutting Earnings Guidance Due to Inflation

Published 05/17/2022, 07:02 AM
Updated 05/17/2022, 07:12 AM
© Reuters.

By Geoffrey Smith

Investing.com -- Walmart (NYSE:WMT) stock fell in premarket after the U.S.'s biggest retailer missed quarterly earnings forecast by a wide margin and warned that inflation will eat into its profits over the rest of the year.

However, Home Depot (NYSE:HD) rose after the home improvement chain's earnings showed it passing on price rises to its customers without too much difficulty.

Walmart said adjusted earnings per share were $1.30 in the three months ended in April, well below a consensus forecast of $1.48. That was despite the fact that it sold more goods than expected: revenue came in at $141.6 billion rather than the $139.1 billion forecast.

The company said that pattern will persist throughout the year: it raised its guidance for annual sales but cut its profit forecast. It said it now expects full-year earnings to fall by around 1%, having guided for an increase of around 5% previously. But it sees currency-adjusted net sales rising by around 4%, up from a previous forecast of 3%.

"Bottomline results were unexpected and reflect the unusual environment," chief executive Doug McMillon said in a statement. "U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected."

He added that the company is "adjusting" and "will balance the needs of our customers for value with the need to deliver profit growth for our future.”

Walmart stock was down 6.2% by 7:10 AM ET (1110 GMT), on course to open at its lowest level in two months.

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The report showed online sales, which had grown rapidly during the pandemic, flattened out markedly in the quarter, rising only 1% from a year earlier. That reflected a surprisingly prompt and full reopening of the company's stores during the period, which also led to the company having to pay more in staff costs than it had expected. Chief financial officer Brett Briggs told CNBC in an interview that staff had returned surprisingly early from COVID-related leave, pushing up the wage bill. 

Walmart's experience contrasted sharply with Home Depot, whose stock rose 3.5% after the company reported higher-than-expected profit in the period, thanks to sustained strong demand from its professional customers in the building trade. Same-store sales rose 2.2% in the three months through April, whereas analysts had expected a slowdown in pandemic-driven home improvements and a 2.7% decline in sales. 

Home Depot raised its forecasts for both sales and earnings for the full year. It now sees a 'mid-single-digit' increase in earnings per share, up from a 'low-single-digit' previously. Its quarterly earnings were some 10% ahead of forecasts at $4.08 a share. The company also nudged up its sales growth forecast to 3% for the year.

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