Walmart and other retail stocks fell sharply overnight after discount giant Dow Jones cut its earnings outlook late Monday. Management pointed to efforts to cut prices and clear backlogs as customers readjust their budgets amid decades-high inflation.
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However, the big retailer raised its sales forecast, citing a “heavy mix” of food and consumables where prices are rising.
Walmart shares fell 8% before the stock market opened today. The stock was down 0.1% in trading on Monday.
Among other retail stocks, Target ( TGT ) fell 5% in premarket trading, while Best Buy ( BBY ) fell 5%. Dollar Tree ( DLTR ) and Dollar General ( DG ), which have no exposure to big-ticket discretionary items, still lost 4%.
Walmart drags retail stocks
The forecast comes after shares of Walmart and other retail stocks tumbled in May amid concerns about retailers’ ability to manage costs and their inventories of food, clothing and other goods amid swings in demand.
Walmart said it expects full-year adjusted earnings per share to fall 11% to 13%, compared with a forecast in May of a decline of about 1%.
For the second quarter, the big retailer forecast an 8%-9% decline in earnings per share. In May, Walmart said it expected earnings per share to be “flat to slightly up.”
In revising its forecasts, the company cited “price action aimed at improving inventory levels at Walmart and Sam’s Club in the US.”
“Food inflation is in double digits and higher than at the end of the first quarter. This affects customers’ ability to spend on general merchandise categories and requires more markdowns to move through inventory, especially apparel,” Walmart said in a statement.
Inventory progress, storage costs
“During the quarter, the company made progress in reducing inventories, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with the backlog of shipping containers,” the chain said. These are all issues that have loomed over retail stocks this year.
“Rising food and fuel inflation rates are impacting how customers spend, and while we’ve made good progress in cleaning up the hard categories, apparel at Walmart US requires more dollar reductions,” CEO Doug McMillan said in a statement.
“We now expect more pressure on general commodities in the back half; however, we are encouraged by the start we are seeing for school supplies at Walmart USA,” he added.
Walmart said it expects second-quarter net sales growth of 7.5%. That was better than a forecast in May of an increase of “above 5%”. For the full year, Walmart said it expects net sales to rise 4.5 percent, up from expectations of about 4 percent given in May.
Walmart is due to report earnings on August 16.
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