Walmart earnings warning ‘train wreck’ sends shares down 10%

NEW YORK, July 25 (Reuters) – Leading U.S. retailer Walmart Inc (WMT.N) cut its earnings forecast on Monday, as rising food and fuel prices prompted customers to scale back their discretionary purchases and its shares gave then in the trade by 10% after the bell.

Shares of competitors like Target (TGT.N) and Amazon.com (AMZN.O) also fell after Walmart’s warning signaling a “literal train wreck” for retailers, said Burt Flickinger, chief executive of Strategic Resource Group.

Walmart, a retail pioneer aimed at cost-conscious shoppers, said its full-year profit would decline 11% to 13%, compared to the 1% decline it previously forecast. It pledged to cut prices on clothing and general goods more aggressively than it did in May to ease a spring backlog.

Excluding divestitures, full-year earnings per share are expected to fall 10% to 12%, the company said.

Neil Saunders, managing director of retail at GlobalData, called the warning a “cause for concern” for Walmart, highlighting the pressure on all retailers.

As gas and food prices soar, consumers are no longer clamoring for clothing, housewares, appliances and kitchen utensils, leaving retailers burdened with mountains of inventory.

Inventory levels at convenience stores in late April were the highest since at least 2000, US Census Bureau data showed. Continue reading

Supply chain issues and demand miscalculations have created further problems. In May, Walmart said it was sitting on over $60 billion worth of inventory by the end of the first quarter and promised “aggressive” price cuts on items like apparel. Continue reading

On Monday, the company said it needed more price cuts to reduce inventories.

“Walmart is much more vulnerable to lower-income customers, and those lower-income customers are suffering the most from higher inflation rates,” said Brian Yarbrough, an analyst at Edward Jones.

In late May and June, Walmart’s smaller competitor Target lowered its earnings guidance twice in several weeks, announcing it was struggling with $15 billion in inventory and saying it would resort to “necessary” measures, including price cuts and Order Cancellations.

Both Walmart and Target are pushing some suppliers to bear higher costs. Continue reading

“Increasing food and fuel inflation are affecting customer spending. … We now anticipate more pressure on general merchandise in the back half,” Walmart CEO Doug McMillon said in Monday’s statement.

There are increasing signs of a slowdown in consumer spending and an update on US economic growth later this week could show that manufacturing contracted for the second straight quarter in the April-June period.

The US Federal Reserve, aiming to curb the fastest inflation in 40 years, is raising interest rates in part to rein in spending across the economy.

Walmart said Monday that it now estimates adjusted earnings per share for the second quarter will fall about 8% to 9%, compared to its previous guidance of flat to slightly higher.

However, Walmart raised its forecast for comparable U.S. sales ex-fuel sales growth to 6%, mainly to reflect the rise in food prices. It previously forecast 4% to 5% growth.

reporting from Siddharth Cavale, Arriana Mclymore and Dan Burns in New York and Deborah Sophia in Bengaluru; Additional reporting by Aishwarya Venugopal in Bengalureu; Edited by Anil D’Silva, Lisa Shumaker and Leslie Adler

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