Walmart shares plummet after guidance cut

A Walmart employee helps a customer outside the Walmart store in Philadelphia. Photo / AP

Walmart reported stronger sales for the 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 cut its full-year earnings forecast, sending shares down more than 11 per cent. Walmart reported earnings of US$2.05 billion, or adjusted per share earnings of $1.30. That's still far short of the per-share earnings of $1.48 that Wall Street had expected.

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

Like many big box retailers, Walmart benefited in the early days of the pandemic as shoppers splurged on food and other necessities, particularly online. But shoppers are resuming to pre-pandemic behaviors like pulling back their spending online and going back to 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 Tuesday that while some shoppers bought high-ticket items like 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. Walmart also confirmed that shoppers are also buying smaller half-gallons of milk, down from gallon jugs.

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

The pair of earnings reports came as the government reported that U.S. retail sales rose 0.9 per cent 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 Commerce Department. Even adjusting for inflation, which was 0.3 per cent on a monthly basis in April, sales increased.

Walmart reported earnings of $2.05 billion, or 74 cents per share. Adjusted earnings per share totaled $1.30, but that's 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 $2.73 billion, or 97 cents per share.

Higher labor and fuel costs as well as higher inventory levels dragged down the company's profits. Walmart said its employees returned from COVID leave faster than expected, resulting in the company being overstaffed for weeks during part of the quarter. Walmart said that it hired more workers at the end of the year to cover for those on leave. But scheduling challenges have been fixed.

Sales rose 2.4 per cent to $141.57 billion, better than the $138.8 billion that analysts had projected.

"Bottom line results were unexpected and reflect the unusual environment," said CEO Doug McMillon. "U.S. 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 per cent last month from a year ago, below the 8.5 per cent surge in March but 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 fueled 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. Placer.ai, a data analytics company, reports that in recent weeks, shoppers are consolidating their trips to save money but visits to Walmart and Target remain strong as they gravitate toward retailers that offer a variety of items.

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

Walmart is particularly sensitive to rising food prices because it's the largest seller in the U.S. Walmart is using years of expertise from monitoring surging prices in other parts of the world like Mexico and parts of South America where it does business.

Those efforts didn't seem to be enough to tame higher costs. Walmart said it now expects earnings for the year to be down 1 per cent; in February, it expected profits to be up in the mid single digits.