You can’t fight inflation as easily as that. And the world’s number one food retailer, Walmart, is once again experiencing it. On Wall Street, the action plunged by nearly 10% after a warning on the evolution of annual profits, ahead of the publication, on August 16, of the accounts for the second quarter. As in mid-May, on the 18th of the month exactly, when the title of the distributor had fallen by 11%, after a lowering of its annual forecasts linked to rising costs.
On Monday evening, Walmart announced that its results will be penalized this year by the rise in fuel and food prices, an inflation that is cutting into household purchasing power and curbing purchases of non-essential products, such as electronics or other so-called discretionary products. ” Double-digit inflation in food is higher than at the end of the first quarter. This affects customers’ ability to spend on non-priority areas and requires more markdowns to clear inventory, especially apparel. “, explains the group in its press release. Markdowns on certain categories of items, such as clothing, also affect margins.
Reduce inventory, even if it means lowering prices
The world’s leading retailer had already announced last month an excessive level of unsold goods, so it did not hesitate to lower its prices to reduce its stocks. This will weigh on the expected profits for this quarter and on the fiscal year.
Walmart now forecasts an 8% to 9% drop in adjusted earnings per share for the second quarter and 11% to 13% for the full year. This is a fairly drastic revision from initial estimates of stable or slightly higher earnings per share and a decline of around 1% for the full twelve months.
The commercial dynamic is not called into question. For this second quarter, sales growth should thus come out at around 6% in the United States on a comparable store basis. This is more than the 4% to 5% increase that was initially expected. But the product mix is unfavorable, with margins traditionally being lower in the food sector than in discretionary items, such as televisions or clothing.
“When things go wrong at Walmart…”
Walmart, by its critical size on the scale of the United States and the whole world, and by the diversity of the products sold, is considered as one of the barometers of the activity, especially of the behavior of the consumer. This explains the shock wave triggered by these statements on other players in the sector. In the United States, Target, which also reduced its forecasts last month, and Amazon are thus expected to drop sharply. In Paris, Carrefour and Casino are not spared, both down more than 2%. In London, Kingfisher, Marks & Spencer and Tesco are also anchored in the red, as are Zalando in Germany and H&M on the Stockholm Stock Exchange.
” When things are bad at Walmart, you can extrapolate what’s going on at other retailers “Summarizes Neil Saunders, of the firm GlobalData. Amazon will publish its quarterly accounts at the end of the week. However, Brian Yarbrough, analyst at Edward Jones, specifies that ” Walmart is under more pressure because they cater to a low-income customer “.