Walmart Flashes a Warning Sign to the Entire Consumer Economy

May 26, 2022

Walmart Flashes a Warning Sign to the Entire Consumer Economy

The world's largest retailer missed Wall Street expectations for profit on Tuesday and downgraded its outlook from a mid-single-digit hike to a 1% decline for full-year earnings per share. Walmart's CEO Doug McMillon said this latest bottom-line result was unexpected and reflected an "unusual" environment. Shares of Walmart dropped by over 11% on Tuesday, the biggest drop in 35 years.

Certainly, this result is unexpected, and it should send a warning to the broader consumer economy.

Historically, higher prices have been beneficial to supermarkets and consumer goods companies, as they have increased the value of their sales. Keeping their volumes stable automatically boosts same-store sales. This is exactly what occurred at Walmart: same-store sales in the United States, excluding gasoline, increased 3% year over year, above analysts' expectations of a 2% gain.

However, higher staff costs, bloated inventory levels, and increased fuel prices impacted profits. Approximately a third of the shortfall was attributed to each of these factors.

To begin with, Walmart's wage bill increased. A large number of people were hired at the end of the previous year to fill the position of staff out sick with the COVID-19's omicron strain. However, they recovered in the first half of the quarter, which meant that the retailer had several weeks of surplus labor.

Furthermore, the company sold fewer clothes and home furnishings than anticipated, although these are some of its most profitable categories. Last year's supply chain problems led to stockpiling of such items, and inventories rose nearly a third to $61.2 billion.

Lastly, it had to pay an additional $160 million for fuel in its US business, and it was unable to pass this cost onto the consumer as quickly as anticipated.

Walmart has a reputation for being budget-conscious, so these results are remarkable. The company's frugal philosophy is a major reason why it is able to charge such low prices. Walmart's struggles even with its thriftiness and scale indicate that smaller and less efficient retailers may have a tough time going forward - not least because the company's first-quarter report contained another note of caution.

As inflation takes a toll on consumer discretionary incomes, consumers' purchases are starting to change. In order to cover the increased food costs, Americans cut back on clothing and furnishings more than Walmart anticipated. Similarly, abnormally cold weather, which affected items like clothing and patio furniture, made matters worse.

There are other retailers as well who suffer from high prices. Even though Home Depot reported better-than-anticipated sales for its first quarter and saw the average amount consumers spent increase by 11%, the number of customer transactions declined by 8%.

Target Corp., which had forecast a margin of at least 8% for this year, lowered it to 6% on Wednesday. There was an increase of $1 billion in fuel and freight costs in the first quarter of the year, and the retailer stated it saw no signs of a slowdown in expense growth. During pre-market trading, the company's stock fell by over 20%.

Even though Walmart and Target face pressure, they have higher chances of weathering the storm. A significant decline in their stock price seems excessive.

https://liquidity-provider.com/app/uploads/2022/05/unnamed-8.png

It should be possible for Walmart to eliminate its high inventory levels in the upcoming quarters. Being at the beginning of the summer season rather than at the end makes it easier to address these issues. In addition, its value-oriented approach should gain customers' attention.

It's inevitable that some consumers will trade down, or put fewer items in their baskets, while others will shift their shopping from pricier retailers to Walmart. Despite an increase in the average customer spending due to inflation, the number of transactions in stores has increased slightly as well.

While it is anticipated that Procter & Gamble Co. and Nestle SA will try to pass along their own cost increases to Walmart, Walmart's scale will allow it to have more influence over suppliers. Therefore, food prices should be managed more effectively by the company. Meanwhile, as one of the most well-run retailers in the country, Target has done many things right to help attract customers, including renovating its stores and using them as delivery hubs for online orders.

Of course, other risks exist, and one of them is the expansion of German no-frills retailers, Aldi and Lidl, into the US market, which are competing in the same field of stable, low prices.

But even if Walmart and Target are being affected by the stretched consumer, other retailers will be faced with a lot more challenges.

Subscribe Our Newsletter

Stocks Are Struggling After Reporting Earnings. These 5 Could Soar
Stocks Are Struggling After Reporting Earnings. These 5 Could Soar

It's not that incomes have been poor. According to Credit Suisse statistics, aggregate first-quarter profits per share for S&P 500 businesses that have disclosed their results so far were 8.7 percent higher than projected as of Monday morning.

Stocks
Bitcoin Prices Could Triple: Crypto Bull
Bitcoin Prices Could Triple: Crypto Bull

Even as bitcoin prices (BTC-USD) have surged to new highs this week, veteran crypto investor Dan Morehead has maintained his positive perspective.

Crypto
Get the ultimate solution: B2BinPay Get the ultimate solution: B2BinPay
Sponsored
Oliver

How to Accept Crypto Payments as a Business
During COVID-19 pandemic, global cryptocurrency usage reached an astonishing half a billion users. Due to this fact, many businesses, entrepreneurs, and even major institutions have begun to explore how to accept cryptocurrency payments.

discover
What Is Crypto Exchange Liquidity?

Alexander

What Is Crypto Exchange Liquidity? How Does It Influence a Platform’s Performance?

Crypto liquidity is a vital aspect of any crypto exchange platform, which greatly affects the trading experience of its users.

Crypto Exchange Business
Contact us bg

Contact Us

Contact the Liquidity Provider
for any questions and advertising inquiries

    Please fill out this contact form to get in touch with us

    / 3000

    By clicking “Get in touch” button, you agree to the privacy policy

    Successful!
    Thank you for your request.
    We will contact you shortly.
    Close

    Alexander

    What Is an Interest Coverage Ratio? How to Use This Financial Metric to Evaluate Company Health

    Interest Coverage Ratio Explained

    Hazem

    After-Hours Trading: Can You Trade After Financial Markets Close?

    After-Hours Trading Explained

    Alexander

    How to Scale a Crypto Exchange Business and Stay Competitive

    how to scale crypto exchange business

    Constantine

    Crypto CrypticStreet Review: The Future of DeFi and Secure Crypto Trading

    Crypto CrypticStreet Review: The Future of DeFi and Secure Crypto Trading

    Alexander

    Bitcoin Power Law Explained: How It Shapes BTC’s Long-Term Growth

    Bitcoin Power Law Explained: How It Shapes BTC’s Long-Term Growth

    Hazem

    Megaphone Pattern​: What Is It? How to Use It In Trading

    Megaphone Pattern​: How to Read & Trade with It

    Constantine

    Top 5 Liquidity Bridge Providers in DeFi

    Top 5 Liquidity Bridge Providers in DeFi

    Hazem

    Max Funded IUL Explained: Is It a Legitimate Financial Strategy?

    Understanding Max Funded IUL

    Alexander

    Tax Refund Timeline: When Will You Get Your Tax Return?

    how long does it take for tax refund

    Constantine

    Crypto Liquidity — What is it, and How to Measure It?

    What is Crypto Liquidity and How to Measure It?

    Constantine

    AI in Finance: A Game-Changing Trend Shaping the Industry

    AI in Finance

    Hazem

    5 Ways to Make Money with ChatGPT and Build Your Wealth

    Make Money with ChatGPT

    Constantine

    Top AI Companies to Invest in April 2025

    Top AI Companies to Invest in March 2025

    DeepSeek vs ChatGPT: Which AI Technology is Better For You?

    DeepSeek vs ChatGPT: Feature-by-Feature AI Tool Comparison

    Constantine

    Top Solana Meme Coins in 2025: Best Presales and Where to Buy

    Solana Meme Coins 2025

    Alexander

    How Renewable Energy Stocks Can Supercharge Your Portfolio

    How Renewable Energy Stocks Supercharge Your Portfolio

    SEC Crypto Regulations: What Financial Advisors Need to Know

    SEC Crypto Regulations: Insights for Financial Advisors

    Hazem

    The Cup and Handle Pattern – How Trade Using This Bullish Indicator?

    Cup and Handle Pattern – How to Predict Price Breakouts?

    Hazem

    Year-Over-Year (YoY): What It Means? How It’s Used in Finance?

    Year-Over-Year (YoY): How to Calculate Business Performance?

    Constantine

    What is WAGMI and NGMI? Understanding Crypto Slangs

    WAGMI vs. NGMI

    Alexander

    Litecoin Mining Guide: How to Get Started in 2025?

    Litecoin Mining Guide: How to Get Started in 2025?

    Constantine

    What is Thruster (THRUST): An Advanced AMM for the Blast Ecosystem

    Thruster (THRUST): How Does it Revolutionise DeFi?

    Constantine

    How Does Polymarket Work? Detailed Guide

    How Does Polymarket Work? Comprehensive Guide

    Constantine

    Coinbase vs. Сoinbase Pro: Which Platform is Right for You?

    Coinbase vs. Coinbase Pro
    liquidity-provider-logo
    • News
      • Stock Market Forecast
      • Stocks
      • Banks and Finance
      • Companies
      • Crypto
      • Forex
      • AI
      • Technology
      • DeFi
      • NFT
    • Articles
      • Crypto Payments
      • Trading
      • Crypto Exchange Business
      • Forex Business
      • Fintech
      • Liquidity
      • FinTech Awards
      • Blockchain
      • Investing
      • NFT
      • DeFi
    • More
      • Videos
      • Liquidity Providers List
      • Crypto Payment Providers
      • White Label Brokerage Platforms
      • Broker CRM Platforms
    [email protected]

    © 2024 Liquidity Provider. All Rights Reserved

    Privacy Policy Cookie Policy
    This site is registered on wpml.org as a development site. Switch to a production site key to remove this banner.