Walmart cuts profit outlook as inflation bites shoppers

Monday, July 25, 2022 at 9:24 PM by © AFP 2022

Consumers are spending more on food, gasoline and other essentials at Walmart, which cut its profit outlook because of the weakened forecast for other goods that are more lucrative. Photo: JOE RAEDLE / GETTY IMAGES NORTH AMERICA/Getty Images via AFP/File
Source: AFP

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Walmart cut its profit outlook Monday as surging inflation prompts shoppers to cut back on higher-margin items as they contend with increased prices for gasoline, food and other staples.

The world's biggest retailer now expects a double-digit decline in operating income for both the second quarter and full year after previously projecting the potential for a slight increase for the second quarter and a decrease of about one percent for the year.

Not all of the latest figures were downgrades to Walmart's forecast, however.

The company now expects comparable sales growth of six percent for US stores in the second quarter, a slight upgrade from its prior outlook, reflecting heavy sales of food and consumables.

But this shift has come at the expense of other categories of merchandise, with the chain flagging apparel as a particularly weak domain in which it has cut prices to unload merchandise.

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"The increasing levels of food and fuel inflation are affecting how customers spend, and while we've made good progress clearing hardline categories, apparel in Walmart US is requiring more markdown dollars," said Chief Executive Doug McMillon.

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"We're now anticipating more pressure on general merchandise in the back half."

Walmart's announcement reflects the reality that profit margins for groceries are "far lower" compared with other goods, said analyst Neil Saunders of GlobalData Retail.

The big chain has dealt with higher labor and freight costs during the pandemic, but has "not passed these costs on in-full, which has an impact on its profitability," Saunders said.

"We believe this is a trend playing out more widely: Most retailers are not struggling to grow their top lines, but they are struggling to maintain the high levels of profitability that were commonplace over the past few years."