Can Walmart roll back inflation?
Walmart got Wall Street’s attention yesterday after it lowered its profit outlook for the second quarter and the full year.
The retailing giant now expects that its second-quarter same-store sales, excluding fuel, will come in around six percent higher. Double-digit food inflation has bumped up dollars spent on groceries and left fewer dollars for consumers to spend on higher margin categories, particularly apparel, according to a press release issued by the chain. The upside, according to Walmart, is that the company continues to gain share of the grocery category.
Walmart, like its chief rival Target, found itself at the beginning of the year with a glut of inventory in non-grocery categories and has been engaging in markdowns to move merchandise, which has reduced inventory and margins at the same time. The retailer, which has sought to manage supply chain expenses, said it has made progress in reducing its storage costs tied to backlogged shipping containers.
“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,” said Doug McMillon, Walmart Inc. president and chief executive officer, 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.”
The retailer is anticipating that sales growth will slow against 2021’s high comps. Walmart now expects that U.S. sales will be up three percent, excluding fuel, in the second half of the year. The company said its operating income for the second quarter will fall 13 to 14 percent. Operating income for the full year is expected to decline 11 to 13 percent.
The progress that Walmart and Target have made on clearing their excess inventories may be a drag on the respective companies’ margins, but it may benefit the national economy as a result, according to a research note from Bank of America as reported by Yahoo Finance.
“General merchandise stores are overstocked but the good news is that excess inventories could put downward pressure on inflation as big box retailers mark down their prices to entice consumers,” wrote the authors.
- Walmart Inc. Provides Update for Second Quarter and Fiscal Year 2023 – Walmart
- The ‘good news’ about Walmart and Target inventory warnings, according to BofA – Yahoo Finance
- Retail inventories: too much or too little? – Bank of America
- Will Deal Days help Target clear its inventory? – RetailWire
- Target isn’t wasting any time in cutting the glut from its inventory – RetailWire
- Walmart and Target take different approaches to Amazon’s Prime Day – RetailWire
DISCUSSION QUESTIONS: What does Walmart’s downwardly revised outlook say to the greater retailing industry? Do you think markdowns by Walmart, Target and other large retailers can blunt the effect of inflation on the U.S. economy over the second half of 2022?