Inflation drains Walmart Q1 profit
NEW YORK — Walmart reported stronger sales for its fiscal first quarter, but its profit took a beating as the nation’s largest retailer grappled with surging inflation on food and fuel and higher costs from a snarled global supply chain.
The company also on Tuesday cut its full-year earnings forecast, sending shares down more than 8% in morning trading.
Walmart Inc., based in Bentonville, Arkansas, is among the first major retailers to report quarterly results and is considered a crucial barometer of spending given its size and the breadth of its customer base.
Like many big box retailers, Walmart benefited in the early days of the pandemic as shoppers splurged on food and other necessities, particularly online. But shoppers are resuming to prepandemic behaviors like pulling back their spending online and going back to physical stores. And supply chain clogs and surging inflation are presenting challenges for Walmart and other retailers.
Walmart executives told analysts on a conference call Tuesday that while some shoppers bought high-ticket items like game consoles and patio furniture in the latest quarter, others were switching to private brands from national brands, particularly in lunch meats, as they juggled higher costs. Walmart also confirmed that shoppers are also buying smaller half-gallons of milk, down from gallon jugs.
Meanwhile, Home Depot, the nation’s largest home improvement retailers, said on Tuesday that first-quarter sales improved despite a slow spring start, and it raised its full-year guidance. Still, quarterly sales grew at the slowest pace in two years, noted Neil Saunders, managing director of GlobalData,
The pair of earnings reports came as the government reported that U.S. retail sales rose 0.9% in April, a solid increase that underscores Americans’ ability to keep ramping up spending even as inflation persists at nearly a 40-year high. The increase was driven by greater sales of cars, electronics, and at restaurants, the Commerce Department reported. Even adjusting for inflation, which was 0.3% on a monthly basis in April, sales increased.
Walmart reported earnings of $2.05 billion, or 74 cents per share. Adjusted earnings per share totaled $1.30, but that’s still far short of the per-share earnings of $1.48 that Wall Street had expected, according to a survey by Zacks Investment Research. It also fell below last year’s earnings of $2.73 billion, or 97 cents per share.
Higher labor and fuel costs as well as higher inventory levels dragged down the company’s profits. Walmart said its employees returned from COVID leave faster than expected, resulting in the company being overstaffed for weeks during part of the quarter. Walmart said that it hired more workers at the end of the year to cover for those on leave. But scheduling challenges have been fixed.
Sales rose 2.4% to $141.57 billion, better than $138.8 billion analysts projected.
“Bottom line results were unexpected and reflect the unusual environment,” said CEO Doug McMillon. “U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.”
The government reported last week that inflation eased slightly in April after months of relentless increases. Consumer prices jumped 8.3% last month from a year ago, below the 8.5% surge in March but remains very close to a four-decade high.