Inflation of food and fuel is eating into the profitability of retailers as consumers cut back on higher-margin purchases like clothes and home products. Sarah Nassauer reports in The Wall Street Journal:
Walmart Inc. warned that higher prices for food and fuel were causing consumers to pull back, an ominous sign for the U.S. economy that has relied on resilient household spending power through rising inflation.
The country’s largest retailer, which warned in May that it was stuck with too much unsold goods, said on Monday that it was having to cut prices to reduce merchandise levels at its flagship chain and Sam’s Club warehouse chain. The markdowns will cause the company’s profits to fall in the second quarter and fiscal year.
The announcement sent Walmart’s shares down nearly 10% in after-hours trading Monday, and pressured other stocks, with Amazon.com Inc. falling about 4%. Walmart’s e-commerce rival is slated to report its latest results on Thursday.
The warning casts a cloud over a week when a raft of global brands and multinational companies, from McDonald’s Corp. and Procter & Gamble Co. to Visa Inc. and General Motors Co., are slated to update investors on their latest quarterly results and the outlook for the rest of the year.
Inflation has been running near the highest levels in decades, and the Federal Reserve is expected to raise interest rates this week as it seeks to fight higher prices. Several high-tech companies have warned in recent days of slowing growth, and leaders of some of the biggest banking companies have cautioned they see a high risk of recession.
Walmart said higher prices for food and fuel have hurt sales of general merchandise, especially apparel, which generate higher profit margins for the company. Overall, the company expects comparable-store sales, excluding fuel, for its Walmart U.S. division to rise 6% in the second quarter from a year ago, but the growth is coming from less profitable items. The company is slated to give its full second-quarter report Aug. 16.
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