With inflation shifting consumer spending to essentials like food and fuel, Walmart says its being forced to cut prices for other goods to clear inventory.
It’s only July, but it’s already been a rough year for those keeping an eye on what they spend.
Soaring fuel costs have forced folks to reconsider everything from the way they commute to if they’ll go on vacation, and while there’s been some relief on that front recently, many are still feeling the crunch of all those months of $5 per gallon gas (and in some states, more).
Businesses have felt the bite too, with retail reporting lots of misses in their Q1 earnings. Target (TGT) – Get Target Corporation Report, Walmart (WMT) – Get Walmart Inc. Report, and Amazon (AMZN) – Get Amazon.com Inc. Report all saw losses, while streaming giant Netflix (NFLX) – Get Netflix Inc. Report was another once sure stock that reported disappointing results.
Investors and analysts alike are predicting a recession, which sounds like very bad news after a year that’s already been rocky for many. And while some others deny it (or try to redefine the meaning of the word), one thing is sure: people are concerned about how much worse things could get.
Many large businesses are making moves to adjust to the current market as well as prepare for what’s to come. In its second-quarter earnings call, Walmart went into detail on what those changes would entail.
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How Walmart is Dealing With Inflation
With food costs higher than usual and taking up more of customers’ budgets, Walmart reports that it’s had to turn to deeper discounts to move products in other categories.
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” said Doug McMillon, Walmart Inc. president and chief executive officer.
Walmart also announced a revised forecast for both its second quarter and the year in full, predicting a decline in operating income from 13 to 14% and 11 to 13% respectively.
Shareholders should also prepare to see a bit of a dip, with adjusted earnings per share for the full year expected to decline 10 to 12% (excluding divestitures). Many have already reacted to Walmart’s announcement, leading to a plunge in share price.
All that said, Walmart’s stock has continued on a promising ascent since 2015, and with 55% of its business coming from grocery, it stands to profit more than a competitor like Target, where groceries are a much smaller percentage of its overall business.
Walmart has been busy behind the scenes exploring other ways to grow its business over the past few years, most notably its annual Walmart Weekend+ event, which is designed to be a competitor to Amazon’s Prime Day.
However, the retail behemoth has work to do when it comes to customer awareness for the event. As Tony Owasu previously reported for TheStreet, “Relying on data from observed purchase behavior from a consumer purchase panel as well as verified buyer surveys of Walmart+ Weekend shoppers, Numerator estimates that just 33% of Walmart’s online shoppers were even aware of a sale.”
