Walmart’s profit takes a hit as fuel, labour costs rise

Shares of Walmart fell eight per cent in morning trading Tuesday, its biggest one-day percentage drop since March 2020.

Walmart Inc reported a sharp drop in quarterly earnings and cut its full-year profit outlook on Tuesday as rising costs of fuel and labour hurt its bottom line while shoppers squeezed by decades-high inflation moved to buy lower-margin basics.

Shares of the retailer fell eight per cent in morning trading, its biggest one day percentage drop since March 2020, and dragged down shares of rivals, including Target Corp, which reports results on Wednesday.

Walmart, with its massive store footprint and leading position in domestic grocery sales, serves as a barometer for U.S. consumer sentiment and its earnings are closely watched by investors for hints about the health of the U.S. economy.

On Tuesday, the company reported a three per cent rise in U.S. same-store sales, which came at the expense of margins as it strived to keep prices low while absorbing higher costs.

Gross margins fell 38 basis points in the three months ended April 30, three quarters of which reflected higher supply chain costs, the company said.

Operating expenses also rose by 45 basis points as a percentage of net sales due to elevated inventories and wage costs, the latter of which was exacerbated by a rapid return of employees from COVID leave leading to higher staffing.

Chief Executive Doug McMillon said the retailer’s quarterly profits “reflect the unusual environment,” at a time when U.S. inflation is at a nearly four-decade high.

While some consumers are being squeezed and are increasing spending on private-label brands and half gallons of milk, there are others that are spending on gaming consoles and other higher margin items, Walmart’s CFO, Brett Biggs said, indicating that inflation was impacting certain demographics differently.