Walmart
Walmart's results reverberated throughout the market, especially among retailers and other stocks connected to consumer spending. It also led to a selloff on Wall Street as the market gave up its gains from the recent bounce with the S&P 500 falling to new YTD lows and hitting bear market territory. Another reason that the results were worrisome is that it's the first sign of inflation starting to eat into profits.
Inside the Numbers
In Q1, Walmart reported $1.30 in adjusted earnings per share vs expectations of $1.48 per share. This was a 24% decrease from last year. Revenue was up 2% and topped expectations at $141.6 billion vs the consensus forecast of $138.9 billion.
Walmart's results are considered a bellwether for how the middle-class is handling inflation, and this is certainly a concerning development. The company cited several factors for its weak performance including cooler weather which has led to slower sales of summer items, late-arriving inventory, and inflation pushing costs higher including some overstaffing.
One bright spot is the company slightly raised guidance to 4% revenue growth from 3% previously. However, this is somewhat due to higher grocery revenue which is a reflection of inflation. Due to these costs, earnings are expected to decline by 1% this year from its previous forecast of a 4% increase.
Same-store sales were up 3%, while e-commerce sales increased by 1%. Sam's Club had same-store sales increase by 10.2%. This segment and Walmart's grocery unit are gaining ground as consumers look for value to protect against inflation. However, higher grocery sales lead to lower margins.
The company's attempts to boost inventory levels to protect against supply chain issues or transportation bottlenecks backfired as inventory levels were 33% above normal. The company has many out-of-season items which are likely to weigh on upcoming results.
Walmart is also trying to find the right balance between keeping prices low to win market share and managing inflationary pressures. The company said they are committed to keeping prices as low as possible for staples like milk, eggs, bread, meat, etc., even if it leads to lower margins.