Customers are pulling back on general merchandise categories amid inflation at Walmart, which is often called a bellwether for the nation’s retail industry.
In a business update, the nation’s largest retailer said it will have to offer more discounts to clear general merchandise, hurting its profit margins. Walmart cut its profit outlook for the second quarter and the remainder of the year. Its adjusted second-quarter earnings per share are now expected to be“around” 8% to 9%, and fall 11% to 13% for the year.
The retailer noted that food inflation is double digits and higher than at the end of the first quarter.
“The increasing levels of food and fuel inflation are affecting how customers spend,” said Doug McMillon, president and CEO, Walmart Inc. “And while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars.”
In June, Target Corp. issued a profit warning several weeks after it reported quarterly results, which showed increasing inventory levels.
Walmart now expects second-quarter comp sales, excluding fuel, for Walmart U.S. to rise about 6%, which is higher than the chain previously expected. However, the increase comes with a heavier mix of food and consumables, which is negatively affecting gross margin rate.
The company expects its operating income, excluding units it has divested, to decline between 10% and 12% for for its current fiscal year. That’s down from May, when the retailer said it expected an approximate 1% decrease.
McMillion said the company expects more pressure on general merchandise in the back half of the year.
“However, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.,” he added.