Walmart slashed its profit predictions on Monday as consumers react to inflation by buying essentials rather than more expensive products.
The retail giant announced that its earnings per share will fall between 8% to 9% for the second quarter and 11% to 13% for the year as a result of inflationary pressures and their effects on American consumers. Walmart shares fell nearly 10% after trading closed on Monday afternoon.
“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 said in a press release. “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.”
Despite more careful spending from many consumers, Walmart reported that its market share continues to grow — particularly with respect to groceries — as Americans leave rival stores to seek bargains.
The Consumer Price Index (CPI) rose 9.1% between June 2021 and June 2022, while the Producer Price Index (PPI) rose 11.3% over the same period, according to data from the Bureau of Labor Statistics. S&P Global recently found that businesses are facing “upticks in input costs at suppliers, as fuel, transportation, raw material and wage expenses rose further,” causing many to raise the prices they charge consumers.
Although a report from the Department of Commerce shows that national retail sales grew by 1% last month, the Consumer Price Index (CPI) rose 1.3% over the same period — implying that higher price levels played a significant role in the higher spending rather than true gains in economic activity. Even as wages nominally increase, real average hourly earnings have fallen 3.6% from June 2021 to June 2022 since rising price levels significantly outpace rising pay, according to data from the Bureau of Labor Statistics.
Walmart’s dismal announcement occurs as economists brace for the Bureau of Economic Analysis’ advance estimate of second-quarter gross domestic product (GDP) growth later this week — a reading that is expected to show that the economy shrank at a 1.6% annualized pace from April to June. Because the economy likewise contracted at a 1.5% rate in the first quarter, the United States may have experienced two consecutive quarters of negative growth — meeting the rule-of-thumb definition for a recession.
However, Biden administration officials have denied that the economy is experiencing a downturn. “This is not an economy that’s in recession,” Treasury Secretary Janet Yellen told NBC host Chuck Todd over the weekend. “But we’re in a period of transition in which growth is slowing and that’s necessary and appropriate and we need to be growing at a steady and sustainable pace. So there is a slowdown and businesses can see that and that’s appropriate, given that people now have jobs and we have a strong labor market.”
Meanwhile, President Joe Biden’s job approval fell to a new low of 38% earlier this month, according to a poll from CNN and SSRS. A mere 30% of Americans approve of his economic performance, while 25% support his efforts to battle inflation and 75% identify rising prices as the most important economic problem facing their families.
Source: Dailywire
