Walmart (WMT) had a rough day in the market after dropping its first quarter earnings results on May 17.
The company was able to top revenue estimates, but rising costs, and other headwinds, caused a wide miss on Walmart's bottom line and a big drop in shares.
"While we've experienced high-levels of inflation in our international markets over the years, US inflation being this high and moving so quickly both in food and general merchandise is unusual," CEO Doug McMillon said on Walmart's earnings call.
Despite the inflationary pressure, Walmart was still able to execute its lowest customer price point game plan, offsetting supply chain costs by passing along price increases from suppliers at the category cost of goods level.
But Walmart is also facing the same the inflationary pressures that most Americans are feeling at the pump.
Walmart paid more than $160 million more in fuel costs in the U.S. than it anticipated previously.
The company expects that cost pressure to extend into the second quarter.
The company saw its inventory rise 33%, partially on purpose as it has recently invested in increasing its capacity.
Here's What Led to Walmart's Miss
Walmart placed the blame on its profit miss on three issues: inflationary costs, wage expenses, and general merchandise (not food and groceries) inventory.
The company said each pressure point represented about a third of its overall profit miss.
"As it relates to Walmart US general merchandise sales, we knew that we were up against stimulus dollars from last year but the rate of inflation in food pulled more dollars away from GM than we expected as customers needed to pay for the inflation in food," McMillon said.
Wage expenses were higher than anticipated due to staffing issues the company said.
Walmart over-hired during the height of Omicron and workers returned to the job off of sick leaver faster than they expected. This dynamic led to overstaffing issues.
Walmart says it was able to get the issue under control by the end of the quarter.
"For the most part, I feel good about the way we have those
costs positioned for now. Of course it could change given how dynamic the market is," McMillon said.
Shares of Walmart closed the session down more than 11%.
Walmart said it sees fiscal 2023 earnings falling by around 1%, compared to a prior forecast of a 5% to 6% increase, with net sales rising by around 4%, a 100 basis point boost to its February estimate.
