Walmart and other retail stocks fell sharply overnight as discount giant Dow Jones slashed its earnings outlook on Monday night. Management cited efforts to cut prices and eliminate unsold products, as customers recalibrated their budgets amid decades-high inflation.
However, the big-box retailer raised its sales forecast, citing a “heavy mix” of food and consumables, where prices are rising.
Walmart stock fell 9% before the opening of the stock market today. Shares fell 0.1% in Monday trading.
Among other retail stocks, Target (TGT) fell 5% in premarket trade while best buy (BBY) slipped 4%. dollar tree (LTRD) and General dollar (CEO), which are not exposed to big-ticket discretionary items, still lost 4%.
Walmart lags on retail inventory
The forecast comes after Walmart shares and other retail stocks came under fire in Mayamid concerns over retailers’ ability to manage costs and their inventory of food, clothing and other goods amid changing demand.
Walmart said it expected adjusted earnings per share for the full year to fall 11% to 13%, down from a forecast in May of a drop of about 1%.
For the second quarter, the big-box retailer forecasts an 8-9% drop in earnings per share. In May, Walmart said it expected earnings per share to be “flat to slightly higher.”
The company, in revising its guidance, cited “pricing actions aimed at improving inventory levels at Walmart and Sam’s Club in the United States”
“Food inflation is in double digits and higher than at the end of the first quarter. This is affecting the ability of customers to spend in general merchandise categories and requiring more markdowns to browse inventory, especially clothing” , Walmart said in a statement.
Inventory progress, storage costs
“During the quarter, the company made progress in reducing inventory, managing pricing to reflect certain supply chain costs and inflation, and reducing storage costs associated with a container backlog. shipping,” the channel said. All are issues that have hovered over retail stocks this year.
“Rising levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress eliminating hardline categories, apparel at Walmart US requires more markdown dollars,” CEO Doug McMillon said in a statement.
“We now expect more pressure on general merchandise in the second half; however, we are encouraged by the start we are seeing on school supplies at Walmart US,” he added.
Walmart said it expected net sales growth of 7.5% in the second quarter. This was better than a forecast in May for an increase of “more than 5%”. For the full year, Walmart said it expects net sales growth of 4.5% compared to expectations of about 4% given in May.
Walmart is due to release its results on August 16.
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