Walmart: Profits dragged down by inflation, supply chain woes

The big-box retailer cut its full-year earnings forecast, sending shares down more than 8 percent in morning trading.

Walmart shopping carts are seen on the parking lot
Like many big-box retailers, Walmart benefitted in the early days of the pandemic as shoppers splurged on food and other necessities, particularly online [File: Kamil Krzaczynski/Reuters]

Walmart reported stronger sales for its fiscal first quarter, but its profit took a beating as the nation’s largest retailer grappled with surging inflation on food and fuel and higher costs from a snarled global supply chain.

The company also on Tuesday cut its full-year earnings forecast, sending shares down more than 8 percent in morning trading.

Walmart Inc, based in Bentonville, Arkansas, is among the first major retailers to report quarterly results and is considered a major barometer of spending given its size and the breadth of its customer base.

Like many big-box retailers, Walmart benefitted in the early days of the pandemic as shoppers splurged on food and other necessities, particularly online. But shoppers are resuming to pre-pandemic behaviours, such as pulling back their spending online and going back to the physical stores. And supply chain clogs and surging inflation are presenting challenges for Walmart and other retailers.

Walmart executives told analysts on a conference call on Tuesday that, while some shoppers bought high-ticket items such as game consoles and patio furniture in the latest quarter, others were switching to private brands from national brands, particularly in lunch meats, as they juggled higher costs.

Meanwhile, Home Depot, the nation’s largest home improvement retailer, said on Tuesday that first-quarter sales improved despite a slow spring start and the home improvement chain raised its full-year guidance. Still, the quarterly sales exhibited the slowest pace of growth in two years, noted Neil Saunders, managing director of GlobalData,

The pair of earnings reports came as the government reported that US retail sales rose 0.9 percent in April, a solid increase that underscores Americans’ ability to keep ramping up spending even as inflation persists at nearly a 40-year high. The increase was driven by greater sales of cars, electronics, and at restaurants, the Department of Commerce said. Even adjusting for inflation, which was 0.3 percent on a monthly basis in April, sales increased.

Walmart reported earnings of $2.05bn, or 74 cents per share. Adjusted earnings per share totalled $1.30, but that is still far short of the per-share earnings of $1.48 that Wall Street had expected, according to a survey by Zacks Investment Research. It also fell below last year’s earnings of $2.73bn, or 97 cents per share.

Sales rose 2.4 percent to $141.57, better than the $138.8bn that analysts had projected.

“Bottom line results were unexpected and reflect the unusual environment,” said CEO Doug McMillon. “US inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.”

The government reported last week that inflation eased slightly in April after months of relentless increases. Consumer prices jumped 8.3 percent last month from a year ago, below the 8.5 percent surge in March, but it remains very close to a four-decade high.

And there are sobering signs that inflation may be becoming more entrenched. Excluding the volatile food and energy categories, so-called “core prices” jumped twice as much from March to April as they did the previous month. The increases were driven by spiking prices for airline tickets, hotel rooms and new cars. Apartment rental costs are also spiking.

Still, Walmart’s sales held up. The retailer tends to benefit in an inflationary environment as shoppers typically trade down to lower-price stores.

Sales at stores opened at least a year at Walmart’s US division rose 3 percent, below the fourth quarter pace of 5.6 percent and the 9.2 percent jump in the third quarter. Online sales rose 1 percent in the fiscal first quarter as growth has slowed from the pandemic-infused sprees of early 2021. That is down from 8 percent growth in the third quarter.

Shares rose 16 cents to $148.21 in morning trading on Tuesday.

Source: AP