Walmart, $Walmart (WMT.US)$ Yesterday, another announcement was made lowering the guidance for Q2 and the full year, once again triggering a sharp decline across the entire retail sector.In fact, this is not the first time Walmart has lowered its guidance this year (it had already cut the full-year EPS forecast in May when releasing the Q1 earnings report), and it is not the only retail giant to have lowered guidance twice (another retailer, Target, also cut its guidance again after the Q1 report).
1. The situation of revenue growth without profit improvement from Q1 has not been resolved, and the impact on EPS has worsened.
The direction of the two earnings guidance adjustments is the same: a slight increase in net sales and comparable sales guidance but a significant reduction in the EPS forecast.. Walmart’s Q1 financial report showed a situation of revenue growth without profit improvement (revenue increased by 2.4% year-over-year, surpassing market expectations, while net profit fell by 24.8% year-over-year). The underlying reasons were an inability to fully cover rising costs through pricing, improper inventory control, and incorrect estimates regarding the speed at which employees would return to work after the decline in COVID-19 cases, resulting in higher labor costs.
At the time, the company claimed that measures such as matching pricing, dealing with excess inventory, and reducing staff had been implemented. However, judging from this adjustment to guidance, the increase in net sales likely reflects price hikes on food and daily necessities under high inflation. Customers are choosing Walmart to save money during this period of inflation.The further reduction in EPS reflects the weakness in discretionary consumer goods, and discounting to clear inventory has further impacted gross margins.
2. Excessive spending on essentials such as food...