Walmart On Monday it cut its quarterly and full-year earnings guidance, saying inflation is causing shoppers to spend more on necessities like food and less on items like clothing and electronics.
The company’s shares fell in after-hours trading following the announcement. Shares of other retailers, including targeting And the E-commerce giant Amazonalso fell.
This spending shift has left more items on store shelves and warehouses — forcing Walmart to identify items that customers strongly don’t want.
The major retailer said it now expects adjusted earnings per share for the second quarter and full year to fall about 8% to 9% and 11% to 13%, respectively. It had previously forecast it to remain flat in the second quarter and to fall by about 1% for the full year.
inflation It has grown at the fastest pace in four decades. As consumers experience higher prices at fuel pumps, groceries and restaurants, some consumers experience Choose where to spend the money and where to fall back. In some cases, they prioritize experiences they missed during the pandemic — like splurge on vacation or dinner at a restaurant.
Walmart said more customers are turning to its stores, which are known for their low prices, to fill up their pantries and refrigerators — but skip the general merchandise they can live without.
Walmart said it now expects same-store sales in the United States to rise about 6% in the second quarter, excluding fuel, as customers buy more food in its stores. That’s higher than the 4% to 5% increase the company had previously forecast.
However, this merchandise mix will affect the company. Grocery has lower profit margins than discretionary items, such as televisions and clothing.
“Increasing levels of food and fuel inflation are impacting how customers spend, and while we’ve made good progress in clearing tough categories, clothing at Walmart US requires even more cutback dollars,” CEO Doug McMillon said in a press release.
He said the company is seeing strong back-to-school sales in the US, but he expects people to back away from buying general merchandise in the second half of the year. This could be a warning sign for retailers ahead of the holiday shopping season.
A sharp change in consumer spending could jeopardize other aspects of Walmart’s strategy as well. The company wants to expand its subscription service, Walmart+, but that could be more difficult if Americans look up their bills for fees to lower them. she has launched an increasing number of general merchandise brands, Especially in clothing and at home, which can now end up on the clearance rack.
However, McMillon told Wal-Mart Can gain market share and more customer wallets During the period of inflation by emphasizing good value. Over the past several quarters, he stressed that the discount would keep prices low.
target too It lowered its forecast for the second quarter. Last month, the retailer said its profit margins would be hit as it canceled orders and reduced merchandise. The company attributed the revised forecast largely to a lot of merchandise, including a lot of bulky items such as small home appliances that saw lower demand.
Walmart shares fell more than 9% after hours. targeting It decreased by more than 6%. Amazon It fell more than 4%. MessiAnd the kohl And the Nordstrom Both fell more than 3% after hours, as investors were looking to exit shares that primarily sell clothing and household goods. the difference It decreased by about 2%.
Read the full Walmart version here.
CNBC’s Lauren Thomas contributed to this report.
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