Walmart Inc. forecast full-year earnings below estimates and warned that cautious spending by consumers could pressure profit margins. The company is facing price hikes from many of its product suppliers in a high-inflation environment. Home Depot also forecast weaker-than-expected annual profits on Tuesday as soaring prices hit demand for home-improvement products. Walmart forecast earnings of $5.90 to $6.05 per share for the year through January 2024, below analysts’ estimates of $6.50 per share.
The forecast includes a 14-cent estimated impact from an accounting charge related to moderating inflation in key merchandise categories and reduced inventory levels at its Walmart U.S. and Sam’s Club business. On a post-earnings call, Walmart’s Chief Executive Officer Doug McMillon said he expects “stubborn inflation” in dry grocery and items made for immediate consumption to have some “mixed” impact this year. Walmart’s margins are getting impacted because they are being very competitive with pricing, but they need to do that to get traffic in their stores. Walmart reported strong demand in the holiday quarter ended Jan. 31, posting total revenue of $164.05 billion, a 7.3% increase from last year.
Adjusted earnings per share came in at $1.71, beating the $1.51 average expectation. Walmart is gaining share across income cohorts, including at the higher end, and is also grabbing a greater share of the wallet at its Sam’s Club unit. However, inflation-squeezed consumers are increasingly shifting toward buying more food and consumables from general merchandise, which will continue to be a drag on margins this year. Walmart is using data and leveraging metrics, including best-performing merchandise and best-performing categories, in negotiations with suppliers to pass on lower prices to consumers. Companies, including Procter & Gamble and Nestle, have warned of further price hikes this year.
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