Walmart tumbles as discounts spur new cut to profit forecast

Bloomberg

Walmart Inc cut its profit outlook again in a surprise warning weeks ahead of its earnings report, sending retailer shares tumbling and raising new questions about US consumers’ ability to sustain their voracious spending habits with inflation at a four-decade high.
Adjusted earnings per share will fall as much 13% in the current fiscal year as US shoppers spurn big-ticket items and focus on buying less-profitable groceries amid soaring inflation, Walmart said in a statement. Two months ago, the world’s largest retailer had said earnings per share would only dip about 1%. In February, the company had predicted a modest increase.
Walmart’s warning kicks off a week of bellwether earnings reports from consumer-goods giants including Coca-Cola Co, McDonald’s Corp and Procter & Gamble Co.
Another big US retailer, Target Corp, cut its profit forecast last month, citing a need to take costly actions to get rid of stockpiles of merchandise that its
customers were increasingly reluctant to buy.
“When things go wrong at Walmart, you can extrapolate that it’s happening at other retailers, as well,” said GlobalData’s Neil Saunders.
Walmart slid as much as 10% in late trading to $118.77. The dimmer outlook at Walmart gives US policy makers and investors a late-breaking data point to factor in as they try to determine where the economy and interest rates will be headed over the coming months.
The Federal Reserve is widely expected to increase its key policy rate by three quarters of a percentage point, looking to tamp down stubborn inflation even as signs accumulate that the economy could be tilting into a recession.
A reading on gross domestic product due on Thursday could confirm that the economy has contracted for two quarters in a row. That makes the Fed’s task even more delicate as it tries to cool off rising prices without causing a more severe downturn in activity.
For retailers, weakening profit forecasts are emerging as the painful consequence of building up inventories after years of supply-chain constraints and booming demand.
Now that life is returning to normal retailers are increasingly stuck with stockpiles of unwanted merchandise amid unpredictable swings of demand.