Walmart and other retail stocks tumbled after hours Monday after the company trimmed its earnings outlook. Management cited efforts to slash prices and eliminate unsold product as customers recalibrate budgets amid decades of high inflation.
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However, the big retailer raised its sales forecasts, citing a “heavy mix” of groceries and consumables where prices are rising.
Walmart shares plunged nearly 10% in the stock market after hours today. The shares ended regular trading down 0.1%.
Alongside other retail stocks target (TGT) fell 5% and best buy (BBY) slid nearly 4% money tree (DLTR) and Dollar General (DG), which does not have large discretionary positions, was still down 4%.
Walmart squeezes retail stocks
The forecast comes after Walmart shares and other retail stocks collapsed in May amid concerns about retailers’ ability to manage costs and their inventories of groceries, clothing and other goods amid shifts in demand.
Walmart said it expects full-year adjusted earnings per share to fall 11% to 13%, compared to a forecast of about 1% in May.
For the second quarter, the big-box retailer forecast an 8% to 9% drop in earnings per share. In May, Walmart said it expected earnings per share to be “flat to slightly higher.”
The company cited “pricing actions aimed at improving inventory levels at Walmart and Sam’s Club in the US” in revising its forecasts.
“Food inflation is in double digits and higher than at the end of the first quarter. This impacts customers’ ability to spend on general merchandise categories and requires more discounts to move through inventory, particularly apparel,” Walmart said in a statement.
Inventory progress, storage costs
“During the quarter, the company made progress in reducing inventory levels, managing pricing to account for certain supply chain costs and inflation, and reducing inventory costs associated with a shipping container backlog,” the chain said. These are all issues that have hung over retail stocks this year.
“Rising food and fuel inflation is affecting customer spending, and while we’ve made good progress eliminating hardline categories, apparel at Walmart US is requiring more markdowns,” CEO Doug McMillon said in a statement.
“We now expect more pressure on general merchandise in the back half, but we’re encouraged by the start we’re seeing in school supplies at Walmart US,” he added.
Walmart expects net sales growth of 7.5% for the second quarter. That was better than a May forecast of a gain of “over 5%”. For the full year, Walmart expects net sales to grow 4.5% versus expectations of around 4% given in May.
Walmart is expected to report earnings on August 16.
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