On Monday, Walmart (WMT) lowered its profit forecasts for both the quarter and the entire year, citing rising prices that are leading consumers to spend more on basics like food and less on things like apparel and electronics. More things are now sitting on shop shelves and in warehouses due to this shift in consumer spending, pushing big-box retailers – WMT being the prime example in this case – to aggressively price down goods that no one is buying.
Following the statement, after-hours trading in WMT‘s stock decreased. Other companies’ shares, like Target (TGT) and Amazon (AMZN), also dropped. For the second quarter and the whole year, WMT expects profits per share to fall by 8% to 9% and 11% to 13%, respectively. They were initially anticipated to be flat for Q2 and only drop by around 1% for the year. So, this marks a significant shift.
The rate of inflation growth is currently at its highest level in forty years. Some people are deciding where to spend money and where to cut down due to increased pricing at gas stations, grocery stores, and restaurants. In some situations, individuals prioritize activities they missed out on due to the pandemic, like spending big on a nice trip or a fancy meal.
More consumers are returning to WMT‘s stores – well-known for having low pricing – to stock their pantries and refrigerators. This comes with a certain level of trust, as WMT is the country’s largest grocery retailer and covers such a broad scope that it’s frequently seen as a leading indicator of the health of the retail economy as a whole. However, WMT appears to now ignore everyday items they don’t need.
Due to increased purchases at its locations, WMT said it now anticipates same-store sales in the U.S. to increase by around 6% in the second quarter, excluding gasoline. This is greater than the company’s earlier expected growth of 4% to 5%. However, WMT will feel the effects of that product mix. Unlike discretionary products like televisions and apparel, groceries have smaller profit margins.
CEO Doug McMillon later said in a news release, “The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, Walmart U.S. apparel requires more markdown dollars.”
Other facets of WMT‘s approach may be in jeopardy due to the sudden shift in customer purchasing. If Americans look for decreased costs on their bills, it may be more difficult for WMT to build its subscription service, “Walmart+.” A rising number of general retail brands, notably in the home and apparel industries, have been introduced by WMT over the years. They, however, may soon end up on the discount rack.
Monday evening, U.S. stock futures plummeted after WMT slashed its profit prediction, sending other retail companies plummeting after hours. Futures on the Dow Jones slid by 133 points or 0.4%. Futures on the S&P 500 and Nasdaq 100 fell 0.3% and 0.4%, respectively. WMT‘s stock dropped more than 9% after hours, and Target (TGT) fell by more than 6%. Amazon (AMZN), Macy’s (M), Kohl’s (KSS), Dollar General (DG), and Nordstrom (JWN) all fell more than 3% as investors sought to exit similar retail stocks that largely offer clothes and home goods. The Gap (GPS) and Costco (COST) fell by around 2%.
Traders are preparing for a barrage of economic data and mega-cap tech results this week, as well as the conclusion of the Federal Reserve’s meeting, which should help Wall Street shape its projections for the rest of the fiscal year. Avery Sheffield, an analyst with VantageRock Capital, said after hours, “I think that there’s going to be a bifurcated market. I think the bottom might be in certain stocks, not nowhere in others. So, this actually could be one of the most dynamic earnings seasons we’ve seen in a long time.”
McDonald’s (MCD), Coca-Cola (KO), and General Motors (GM) will announce earnings before the market opens on Tuesday. After the bell, Microsoft (MSFT), Amazon (AMZN), Chipotle Mexican Grill (CMG), UPS (UPS), and Enphase Energy (ENPH) are due to report.
Meanwhile, markets are also awaiting the latest Case-Shiller Home Price Index report, the Consumer Confidence Survey, and new home sales figures, which are scheduled to be released Tuesday morning. The Federal Reserve – beginning Tuesday and concluding Wednesday – will have released what almost feels like the next episode in a mini-series of one general meeting, where traders expect a three-quarter percentage point jump. Fed Chair Jerome Powell will subsequently hold a news conference Wednesday afternoon. To put it lightly, it’s an event-filled week, and I’ll likely be reporting on this again. Stay tuned and stay safe! The ever-present hope is that we can, and will, get through this together.
