Walmart warning sends stock price plunging, renews retail worries

Brian Sozzi
Updated

Walmart just gave all the recession mongers on Wall Street a huge adrenaline shot in the collective arm.

The world's largest retailer slashed its second quarter and full-year profit outlooks late Monday owing to rampant inflation and a consumer retrenchment.

Here's where Walmart stands compared to its guidance offered in mid-May:

  • Second Quarter Net sales Growth: +7.5% (+5% previously)

  • Second Quarter Operating Income: -13% to -14% (flat to up slightly)

  • Second Quarter EPS: -8% to -9% (flat to up slightly)

  • Full Year EPS: -11% to -13% (-1%)

Walmart shares plunged 9% in pre-market trading on Tuesday. The company's ticker

“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," Walmart CEO Doug McMillon 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.”

Walmart declined to make CEO Doug McMillon or CFO John Rainey available for an interview.

"Higher inflation (up double digit percentage and greater than 1Q) is affecting spending on discretionary categories and is occurring beyond Walmart's lowest income tier of consumers. Walmart news is a sign that slightly higher income consumers are feeling the pinch from inflation," said Citi analyst Paul Lejuez in a note to clients.

The Bentonville Bruiser now joins a growing list of household name retailers seeing their profits under siege from brutal inflation in transportation and merchandise with little room to pass on those higher costs to increasingly cash-strapped shoppers.

In early June, Walmart's primary rival Target kicked off concerns about the retail sector's health with a shocking decision to liquidate massive amounts of slow-moving inventory and take a more cautious view on near-term profits. It may take several quarters for Target to clear excess inventory, pros have warned.

Since Target's bombshell, discretionary retailers such as RH, Bed Bath & Beyond, and Kohl's have issued financial warnings for their second-quarter results.

"I have never — maybe I don't remember — seen as much discounting with as much merchandise with high percents off," retail legend and former CEO of Gap and J. Crew Mickey Drexler told Yahoo Finance Live last week.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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