Walmart on Monday cut its quarterly and annual profit forecast, saying inflation is forcing shoppers to spend more on necessities like food and less on items like clothing and electronics.
This shift in spending has left more items on store shelves and in warehouses, forcing the big-box retailer to aggressively mark down items customers don’t want.
Shares of the company fell in after-hours trading following the announcement. Shares of other retailers, including Target and e-commerce giant Amazon, also fell.
Walmart said it now expects adjusted earnings per share for the second quarter and full year to decline about 8% to 9% and 11% to 13%, respectively. He previously expected them to be flat, rising slightly in the second quarter and falling about 1% for the year as a whole.
Inflation rose at the fastest pace in four decades. As consumers face higher prices at the gas pump, grocery store and restaurant, some consumers are choosing where to spend money and where to retire. In some cases, they are prioritizing experiences they missed during the pandemic, like splurging on vacation or dining out at a restaurant.
Walmart, which is the largest grocer in the United States and often seen as a gauge of the overall economy, said more and more customers are turning to its stores, known for their low prices, to fill their pantry. eat and their refrigerators. But they skip over the general merchandise they can do without.
Walmart said it now expects U.S. same-store sales to rise about 6% in the second quarter, excluding fuel, as customers buy more food at its stores. That’s more than the 4-5% increase the company previously expected.
However, this mix of goods will weigh on the business. Groceries have lower profit margins than discretionary items, such as televisions and clothing.
“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,” said CEO Doug McMillon in a press release.
He said the company is seeing strong back-to-school sales in the United States, but expects people to pull back from buying general merchandise in the second half of the year. This could be a harbinger for retailers ahead of the holiday shopping season.
The dramatic shift in consumer spending could also jeopardize other aspects of Walmart’s strategy. The company wants to expand its subscription service, Walmart+, but that could be a tougher sell if Americans skim through their bills to cut fees. It has launched a growing number of general merchandise brands, particularly in apparel and home, which may now find themselves on the clearance rack.
Still, McMillon said Walmart could win market share and more customer wallets during inflationary times by emphasizing good value. In recent quarters, he has emphasized that the discounter will keep prices low.
Target also cut its forecast for the second quarter. Last month, the retailer said its profit margins would suffer as it canceled orders and reduced merchandise. The company largely attributed the revised forecast to too much merchandise, including lots of bulky items such as small appliances that saw demand drop.
Walmart shares fell more than 9% after hours. The target was down more than 6%. Amazon fell more than 3%. Macy’s, Kohl’s and Nordstrom each fell more than 3% after hours as investors sought to exit stocks that primarily sell apparel and home goods. The spread fell by around 2%.
Walmart will release its fiscal second quarter results on August 16.
Read the full version from Walmart here.
– CNBC’s Lauren Thomas contributed to this report.