Walmart Cuts Q2 Guidance as Food Prices Eat Into Hardlines Spending
Walmart pared its Q2 outlook Monday, due to price cuts on hardlines it was forced to take in response to double-digit food inflation and higher fuel costs. Rising food prices are affecting customers’ ability to spend on general merchandise categories…
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“and requiring more markdowns to move through the inventory, particularly apparel,” the retailer said. Comparable sales for Walmart U.S., excluding fuel, are expected to be about 6% in Q2, higher than previously expected with a heavier mix of food and consumables, negatively affecting gross margin rate, it said. During the quarter, Walmart “made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers,” it said. The retailer has “made good progress” clearing hardline categories and is anticipating more pressure on general merchandise in the second half, said CEO Doug McMillon. Consolidated net sales growth for Q2 and full year ending Jan. 31 is projected at 7.5% and 4.5%, respectively; excluding divestitures of U.K. and Japan businesses, consolidated net sales growth for the full year is expected to be about 5.5%, it said. Net sales include a headwind from currency of about $1 billion in the quarter; based on current exchange rates, the company expects a $1.8 billion headwind in the second half. Operating income for Q2 and full-year is expected to decline 13%-14% and 11%-13%, respectively. Adjusted earnings per share for Q2 and full-year are expected to decline 8%-9% and 11%-13%, respectively, it said. On its Q1 earnings call, management guided to Q2 revenue growth of 5% year on year, and it tweaked Q2 operating income to “flat to up slightly” from previous guidance of low-to-mid single-digit growth; it expected a 1% decrease in operating income then, in constant currency, vs. a February projection of a 3% increase. Shares tumbled 10% Tuesday to close at $121.98.