Walmart Shares Plunge Nearly 10% After Company Warns Of Profit Slowdown Due To Inflation

Walmart's shares fell 10% in after-hours trading on Monday after the company slashed its profit outlook for the second quarter and rest of the year due to high inflation.

Due to pricing actions aimed to improve inventory levels at Walmart and Sam's Club in the U.S., the nation's largest retailer lowered its profit outlook.

Walmart now expects earnings per share for the second quarter and full year to decline by 8% to 9% and 11% to 13%, respectively, far lower than previous estimates of slightly positive earnings growth in the current quarter and a small decline for the full year.

The company said it expects same-store sales to rise in the second quarter, with management saying that customers were spending more on groceries and cutting back on pricier items.

Walmart said that food inflation has hit double digits and is higher than in the previous quarter, a trend that has begun to affect margins as consumers spend less on general merchandise.

As it continues to try and reduce extra inventory, it will also continue to manage prices to reflect certain supply chain costs and inflation.

Target and other retailers suffered in after-hours trading, with Target falling over 5% and Amazon 4%.

While progress has been made in clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. There will be more pressure on general merchandise in the second half of the year.

Surprising Fact:

Walmart shares have fallen by just a few percentage points so far this year, but they are still performing better than the S&P 500. Following the Walmart news, the SPDR S&P Retail Exchange Traded Fund fell 3% in after-hours trading on Monday, and is down more than 30% this year.

Key Background:

The first quarter outlooks from major retailers spooked investors and caused a major sell off. Walmart and Target saw their stock prices decline earlier this year due to rising costs and inflationary pressures. Wall Street analysts continue to warn about an ongoing shift in consumer spending as Americans are forced to rethink purchases in the face of higher prices.

Retail stocks rebound but the famine environment may persist.

The stock market selloff continued as major retailers resisted rising cost pressures.

There would be a threat to the U.S. economic recovery.

There is a risk that high inflation could become entrenched.