Walmart has dramatically cut its profit outlook several weeks ahead of its August earnings report.
Despite initially expecting profits to either maintain their current level or dip only slightly, they now forecast up to a 9% dip for the second fiscal quarter and 13% over the quarter of the year.
The company explained in a press release that “food inflation is double digits and higher than at the end of Q1. This affects customers’ ability to spend on general merchandise categories and requires more markdowns to move through the inventory.”
The U.S.’s current interest rate of 9.1% represents the highest rate since 1980.
Rising inflation on necessary items such as groceries leaves customers with less money to purchase discretionary goods. This affects Walmart’s ability to clear inventory, prompting them to reduce prices in hopes of moving products off the shelves.
Last quarter Walmart’s overall inventory rose 33%; this customer purchasing power reduction led the company to “keep prices as low” as they could, according to Doug McMillon, the President and CEO.
Despite the reduced projections, Walmart pointed out that more people were shopping at its stores for necessities. The retail store claimed this is “reflected in the company’s continued market share gains in grocery.”
Regardless, Walmart’s shares fell nearly 9% after-hours on Monday and continued to drop once markets opened on Tuesday. With a net value of $429.34 billion, the retail chain recorded a profit in the fiscal year 2021 of $13.67 billion.
Other major national retail chains are similarly struggling, with Target repeatedly cutting their profit expectations over the past several weeks.
Costco share prices noticeably dropped after the news from Walmart was announced.
Even Amazon has felt the ripple effects; its stocks dropped over 4% on Monday.
Ultimately, historical inflation rates continue to send shockwaves throughout the economy, affecting industry giants like Walmart as well as individual consumers, buffeted by blow after blow.
