Walmart and other retail stocks fell sharply on Tuesday, a day after the Dow Jones discount giant slashed its profit outlook amid efforts to cut prices and clear clothing and other unsold products from its shelves.
The move came as customers recalibrate their budgets to absorb decades-high inflation. As customers shift more spending toward covering rising food prices, Walmart said it expected a tougher stretch for its general merchandise segment for the rest of the year.
However, the big-box retailer nonetheless bumped up its sales forecasts, citing the "heavier mix" of food and consumables. Some analysts lowered their price targets. But others said Walmart was better insulated than others from rising prices.
Walmart stock tumbled 7.6% to 121.98% n the stock market today, slicing below its 50-day line.
Among other retail stocks, Target fell 3.6%. Best Buy skidded 5.1%. Dollar Tree and Dollar General fell 6.3% and 2.6%, respectively.
Walmart Drags On Retail Stocks
The forecast arrives after Walmart stock, Target and other retail stocks got slammed in May, amid concerns about the retailers' abilities to manage costs and inventories. Some signs emerged that consumers were starting to seek out some cheaper forms of food. Target, meanwhile, found itself stuck with items like TVs that it couldn't sell.
Walmart said it expected adjusted earnings per share for the full year to fall 11% to 13%, compared with a forecast in May for a roughly 1% drop.
For the second quarter, the big-box retailer forecast an 8%-9% decrease in earnings per share. In May, Walmart said it expected earnings per share to be "flat to up slightly."
The per-share profit forecasts in May were already lowered from an outlook offered in February.
The company, in revising its forecasts, cited "pricing actions aimed to improve inventory levels at Walmart and Sam's Club in the U.S."
"Food inflation is double digits and higher than at the end of Q1. This is affecting customers' ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel," Walmart said in a statement.
Progress On Inventory, Storage Costs
"During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply-chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers," the chain said. All are problems that have hung over retail stocks this year.
"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," CEO Doug McMillon said in a statement.
"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.," he added.
Walmart said it expected second-quarter net sales growth of around 7.5%. That was better than a forecast in May for an increase of "over 5%." For the full year, Walmart said it expected around 4.5% net sales growth compared to expectations for around 4% given in May.
Walmart is scheduled to report earnings Aug. 16.
Analysts On Walmart Stock
BofA analysts, in a research note on Monday, kept their buy rating on Walmart stock, saying it had lower exposure to discretionary spending categories. They said general merchandise made up around 32% of Walmart's sales last year, compared to more than half at rival Target.
They also said Walmart had "meaningfully (and most consistently)" outperformed the S&P 500 in the past five recessions, and held up during other periods of rising prices.
BMO analyst Kelly Bania, in a note on Monday, said Walmart's forecast "may provide the all clear" on the stock.
However, Oppenheimer analysts remained cautious.
"With two consecutive guide-downs, WMT is now clearly a show-me
story, and we see limited upside" near-term, they said.
