(Bloomberg) – Walmart Inc. Inflationary pressures, especially on food and fuel, have led to the sharpest decline in nearly 35 years since its full-year profit cuts were cut.
Most read from Bloomberg
The growing outlook shakes Walmart’s confidence in its ability to cope with higher costs for goods, transportation and labor. The results also emphasize the pressure on U.S. consumers as rising prices send the lowest sentiment in a decade. Walmart and colleagues already face tough comparisons in early 2021, when federal stimulus payments strengthened family spending during the coronavirus epidemic.
Doug Macmillan, chief executive officer, has set the stage for further price hikes for the world’s largest retailer, saying the company wants to balance customer demand to maximize profits. Its goal is to keep competitors down and raise prices while limiting the price barrier to entry-level food items.
“Price leadership is particularly important at the moment,” Macmillan told analysts. He promises a disappointing quarterly “behind us and a strong year.”
Shares in New York fell 11% to $ 131.35, the biggest fall since October 1987. Walmart has gained 2.4% as of Monday this year, selling U.S. stocks.
Earnings are expected to decline by about 1% this year, the retailer said in a statement on Tuesday, dropping earlier forecasts for mid-single-digit gains. In the first quarter, consolidated profits fell to 30 1.30 per share, below the 29-analyst estimate compiled by Bloomberg.
While revenue growth was strong, U.S. grocery products accounted for most of the growth in sales – and they have lower margins than general merchandise, which has seen declining sales. Adam Chrisfully, a Vital Knowledge analyst, said in a note to clients that the results were a “clear negative”.
“One of the largest and most sophisticated companies in the world has proven incapable of surviving the same corporate margin pressures that hit most firms and isn’t even as good as it looks at sales performance,” he said. This is because revenues have been driven by food inflation while the commodity class has declined by 10-11%, he said.
The size of Walmart gives it a unique perspective on the U.S. economy, and analysts on Tuesday urged the company to seek insights into whether buyers are bringing back their spending as it has been hit by the highest inflation in four decades. The retailer says some consumers are looking to switch to cheaper private-label brands in groceries, but at the same time, demand for some high-end items, such as video-game consoles, is on the rise.
“Operating backdrop has become increasingly complex,” said Edward Kelly, an analyst at Wells Fargo & Co., in a report ticking Walmart. “Consumers are starting to make tough choices, and while WMT is in a good position to trade as a valuable player, it will have to pay more.”
Rising fuel prices – as a result of Russia’s aggression in Ukraine – have pushed consumer spending faster than Walmart was able to deliver to consumers in the last quarter, Macmillan analysts say. He also spoke of a shift in labor costs due to Covid and temporary over-stuffing, higher costs for containers and storage, extra inventory and spending away from general merchandise, which usually has higher profit margins than groceries.
For the current quarter, Walmart said it now expects revenue to be “slightly higher” than in the previous scenario of low-to-mid-unit growth.
Same-store sales at US Walmart stores rose 3% in the first quarter, excluding fuel, with analysts predicting a 2% increase. Revenue rose 2.4% to $ 141.6 billion, compared to Wall Street’s expectation of $ 139.1 billion.
Walmart’s revenue gains are consistent with new government data released Tuesday showing that US retail sales rose at a strong pace despite rising prices in April.
For the full year, Walmart raised its forecast for single-store sales growth in Walmart stores in the U.S. by about 3.5%, which was “slightly above 3%” from the previous outlook.
E-commerce grew 1% quarterly. Online businesses grew significantly during the epidemic lockdown, but demand declined as shoppers returned to the store.
(Updated to include closing price.)
Most read from Bloomberg Business Week
© 2022 Bloomberg LP