Walmart cuts profit guidance as inflation forces shoppers to spend more on food

Walmart on Monday cut its quarterly and full-year profit guidance, saying inflation is causing shoppers to spend more on necessities like food and less on items like clothing and electronics.

Shares of the company fell about 8% after hours. It also dragged down other retailers’ stocks, including Target, which was down by more than 5%. Amazon fell more than 3%. Macy’s, Kohl’s and Nordstrom each tumbled more than 3% after hours, as investors looked to get out of stocks that sell primarily apparel and home goods. Gap dropped around 2%.

Walmart said it now expects same-store sales in the US to rise by about 6% in the second quarter, excluding fuel, as customers buy more groceries. That’s higher than the 4% to 5% increase that the company previously expected.

However, that merchandise mix will weigh on the company’s profits. Food has lower profit margins than discretionary items, such as TVs and clothing.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart US is requiring more markdown dollars,” CEO Doug McMillon said in a news release.

He said the company is seeing strong back-to-school sales in the US, but anticipates people will pull back on buying general merchandise in the second half of the year.

Walmart’s adjusted earnings per share for the second quarter and full year is expected to decline around 8% to 9% and 11% to 13%, respectively. That’s much lower than its previous expectations of adjusted earnings per share growth that was flat to up slightly for the second quarter and a decrease of 1% for the full year.

Target also slashed its forecast for the second quarter. Last month, the retailer said its profit margins would take a hit as it canceled orders and marked down merchandise. The company largely attributed the revised forecast to having too much merchandise, including a lot of bulky items like small home appliances that saw a drop in demand.

Read the full release here.

– CNBC’s Lauren Thomas contributed to this report.

This is breaking news. Please check back for updates.

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