WalMart has lowered profit expectations pointing to rising inflation. WalMart, which has been among the top retailers in the US for decades, can be regarded as a kind of barometer of consumer sentiment and trends. The company reported rising demand for groceries while minimizing purchases of 'second necessity' goods. The retail giant's drastic price drop has already spread to other companies in the sector, with Costco, Target and Macy's, among others, losing ground in pre-opening trade:
- WalMart estimates that earnings per share for the full year 2022 will fall about 11 to 13%. Earlier it had assumed that earnings per share would be flat or oscillate slightly this year. WalMart's forecast raises concerns around the expected course of the economic slowdown in the second half of the year;
- At the same time, Walmart expects U.S. sales growth of about 6% in Q2, excluding fuel, as shoppers buy more food in stores. The forecast is above previous expectations of 4% to 5%, but the radical shift toward groceries does not support margins optimally;
- Inflation is curbing consumption and causing the public to spend more and more on groceries 'filling fridges and pantries' which is impacting WalMart's margins through declining sales of electronics and other 'second necessities'; Grocery margins are relatively lower compared to other categories that are not growing in popularity which is hitting the market chains' profitability;
- Increasing fuel and commodity prices make consumers increasingly calculate where they will spend their money and reduce consumption. On the other hand, the summer period has never favored retailers like WalMart. Statistically, consumers spend more during this period on planned vacations and restaurants;
- WalMart, as a result of its plan to empty warehouses still overflowing after the pandemic, is forced to sell items (primarily clothing) at lower prices, which also hurts profits;
- WalMart is reporting strong sales of school supplies in the U.S. but expects to reduce spending on general merchandise, which further raises concerns around the holiday shopping season, which could be much weaker than in previous years limiting revenue growth forecasts. However, the company believes that with sizable promotions it can gain more market share and positive sentiment from customers who will stay with the chain for longer.
WalMart (WMT.US) stock chart, W1 interval. The sales giant's share price quickly returned above the 200-session moving average, which provided the price with multi-year support and set an upward trend. Today's price in pre-opening trade suggests a drop below $120, which means that the bears will test the 200 SMA again. The company is trading at a still high premium, with a P/E ratio of 28, with the average around 20 for the S&P500 and 19 for the Dow Jones index. Source: xStation5
