Breakingviews – Walmart’s pain will be problem shared widely – Reuters

July 26, 2022 by No Comments

Shopping trolley is seen in front of Walmart logo in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration/

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NEW YORK, July 25 (Reuters Breakingviews) – When Walmart (WMT.N) sneezes, America reaches for its N95 mask. The supermarket colossus makes up nearly 10% of all retail sales, excluding cars and car parts, and is also the biggest private U.S. employer, with 1.6 million workers. So after it said on Monday that it would miss its profit targets because customers are rethinking how to spend, the result is a widespread problem.

The house Sam Walton built says earnings per share for the year could fall 13% short of last year’s figure. That’s just over 80 cents less than analysts were expecting, according to Refinitiv, equivalent to around $2.3 billion in total. Walmart’s stock fell more than 10% after the market closed, erasing about $35 billion of market capitalization, in a clear indication that what’s at stake is more than just a fallow year.

Walmart has two issues, both bad for its profitability: the goods its customers no longer want, and the goods they actually do. Its warehouses are piled high with merchandise that inflation-pinched shoppers no longer desire, notably clothing. The company had some $61 billion of inventory at the end of April, compared with around $44 billion at the beginning of 2020. Getting back to those more normal levels will be ugly and involve heavy markdowns, but not enough to fully explain the market reaction.

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Future spending also has shifted. Consumers are buying more food, which generates lower margins. The trend could stick. For perspective, Walmart’s gross margin — effectively what it keeps after paying its suppliers for products — is typically around 25%. A clothing merchant such as …….



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