Walmart 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 per cent decline. Chief Executive Officer Doug McMillon said the bottom-line results were “unexpected” and reflected the “unusual” environment. Walmart shares tumbled more than 11 per cent on Tuesday, the most in 35 years.
But higher staff costs, bloated inventories and more expensive fuel took their toll on profits. Each accounted for about a third of the shortfall. Finally, it had to pay US$160 million more for fuel in its U.S. business, and it could not pass this through to store prices as quickly as it had hoped. Walmart isn’t the only retailer to feel the pinch of high prices. While Home Depot Inc. reported better-than-expected first-quarter sales and saw an 11 per cent increase in the average amount that each consumer spent in the first quarter, the number of customer transactions fell by 8 per cent.
Walmart 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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