Walmart warns of lower profit due to food, gas inflation

By: Elina S.

Walmart on Monday lowered its profit outlook for the second quarter and the full year, citing surging inflation on basics like food that is forcing shoppers to cut back on discretionary items, particularly clothing, that carry higher profit margins.

That behavior is forcing the nation’s largest retailer, based in Bentonville, Ark., to step up discounts on general merchandise items like home furnishings and electronics to move inventory.

Walmart’s shares fell nearly 9% in after-hours trading Monday.

Walmart said its namesake US division is expected to report comparable sales excluding fuel to be up 6%, higher than previously expected, but the mix is more heavily weighted toward lower-margin food and consumer basics. Walmart, which also owns Sam’s Club, is slated to report quarterly results next month.

“The increasing levels of food and fuel inflation are affecting how customers spend,” said Walmart CEO Doug McMillon in a statement.

McMillon said the company is expecting more pressure on general merchandise in the second half of the year. However, Walmart said it is encouraged by the early signs for sales of back-to-school supplies.

Walmart said that during the second quarter, the company made progress reducing inventory, managing prices to reflect certain supply-chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers.

Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery,” the company said.

As a result, adjusted earnings per share for the second quarter and full year are expected to decline around 8% to 9% and 11% to 13%, respectively. Excluding divestitures, adjusted earnings per share for the full year is expected to decline 10% to 12%.