The world’s biggest retailer is known for being careful about costs. But that’s harder to do when prices for everything are risingWalmart just highlighted the dark side of inflation. The world’s biggest retailer on Tuesday reported profit that fell short of Wall Street expectations and downgraded its outlook for full-year earnings per share from a mid-single digit increase to a 1% decline.
Inflation is usually a benefit to supermarkets and consumer-goods companies, as higher prices elevate the value of their sales. If they can keep volumes stable, then their same-store sales automatically rise. Indeed, this is exactly what happened at Walmart: US same-store sales excluding fuel rose 3% compared with a year ago, topping analysts’ estimates of a 2% increase.
Second, it sold less clothing and home furnishings than expected, and these are some of its more profitable categories. It had stocked up on such items amid last year’s supply chain snarl-ups, and inventories were up about a third to $61.2bn. The squeeze of inflation on discretionary incomes is starting to affect what consumers buy. Because Americans were having to spend more on food, they cut back on clothing and home furnishings more than Walmart had expected. Unseasonably cool weather, affecting items such as apparel and patio furniture, didn’t help either.
The group should be able to work through its high stock levels in the coming quarters. It helps that it is facing these issues at the start of the summer season rather than the end. And its focus on value should help it win over more customers.
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