NEW YORK — Walmart Inc. on Monday lowered its profit outlook for the second quarter and the full year, citing surging inflation on basics like food that is forcing shoppers cut back on discretionary items, particularly clothing, that carry higher profit margins.
That behavior is forcing the nation's largest retailer, based in Bentonville, Arkansas, to step up discounts on general merchandise items like home furnishings and electronics to move inventory.
Walmart’s shares fell nearly 9% in after-hours trading Monday.
Walmart's move to lower its profit outlook in the middle of the quarter is rare and raised worries about how inflation, the highest in 40 years, is affecting the entire retail sector. The stocks of many major retailers, including Target, Macy's and Kohl's, fell following Walmart's Monday announcement.
“As the country’s largest retailer, Walmart is a bellwether for the entire sector," said Neil Saunders, managing director of GlobalData Retail in a report. “Its downgrading of second quarter and full fiscal guidance is a cause for concern and highlights the pressure that all retailers are currently under."
The news from Walmart comes as the Federal Reserve is set to announce another hefty hike in its benchmark interest rate on Wednesday. Together with its previous rate increases, the Fed’s moves will make borrowing costlier for individuals and companies and likely damper the economy over time.
Walmart said its namesake U.S. division is expected to report comparable sales, excluding fuel, to be up 6%. That's higher than previously expected but the mix is more heavily weighted toward lower-margin food and consumer basics. Walmart is slated to report fiscal second quarter results on Aug. 16.
“The increasing levels of food and fuel inflation are affecting how customers spend,” said Walmart CEO Doug McMillon in a statement.
McMillon said the company is expecting more pressure on general merchandise in the second half of the year. However, Walmart said it is encouraged by the early signs for sales of back-to-school supplies.
Walmart said that during the second 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.
“Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery," the company said.
As a result, adjusted earnings per share for the second quarter and full year are expected to decline around 8% to 9% and 11% to 13%, respectively. Excluding divestitures, adjusted earnings per share for the full year is expected to decline 10% to 12%.