Friday
August, 19

Walmart’s Prediction Of Profit Reduction Affects Other Retailers

Following Walmart’s reduction of its profit prediction and warning that shoppers are being squeezed by rising food and gas prices, shares of retailers including Macy’s, American Eagle, and Amazon all declined on Tuesday.

The big-box retailer, which also happens to be the biggest grocery chain in the nation, claimed that the cost of living is increasing for households, leaving less money for purchases like new clothing and other wants. Walmart stated that to clear out general products, it will have to give steep discounts, which will reduce its profit margins.

The announcement acted as yet another cautionary tale for Wall Street. It increased worries about changing consumer behavior and whether inflation has put an end to spending binges sparked by pandemics. Mid-August is when major retailers like Walmart and Macy’s are expected to disclose their financial results.

Steph Wissink, a retail analyst with Jefferies, said, “This is a sneak peek inside the issues and the decision-making that’s going inside of the family.”

We appear to be solidly in a “discretionary goods recession,” according to Wissink, even though economists have not yet proclaimed one.

Investors are currently sorting through months’ worth of contradicting data points as Walmart updates its outlook. While the consumer outlook has deteriorated, the labor market has remained robust. Despite the greatest inflation growth in years, airports are crowded with summer vacationers. Although thousands of Netflix subscribers have canceled their memberships, McDonald’s and Coca-Cola claim that consumers have been prepared to pay more so far for burgers and sodas.

The situation has also been compounded by other considerations. Retailers are taking advantage of a time when consumers had additional cash thanks to stimulus cheques and savings from what they would have otherwise spent on services like gym memberships, hotels, and dining out. People rushed to buy new kitchen appliances, exercise gear, and leisurewear during the pandemic, all of which have since entirely fallen out of fashion.

According to Craig Johnson, the founder of retail consulting firm Customer Growth Partners, lower-income households are spending more on necessities owing to inflation, which is the source of the decline in discretionary spending. Additionally, he claimed that people with greater incomes spend more on services like travel and leisure rather than items related to the pandemic.

He claimed that Walmart’s pre-announcement “was hardly a surprise” and would be the first of numerous of a similar nature.

One of the first businesses to warn about rough seas was Target. It twice lowered its prediction for profit margins, citing the need to cancel orders and raise markdowns to get rid of unsold goods. It attributed the issue to having the incorrect inventory, which included TVs, motorcycles, and home appliances that were popular during the pandemic, and claimed that it needed to make room for back-to-school supplies and holiday shopping.

In the last few weeks, profit warnings have been issued by Kohl’s, Gap, Bath & Body Works, and Bed Bath & Beyond. Additionally, several businesses have announced layoffs, including e-commerce platform Shopify, video game store GameStop, and online styling service Stitch Fix.

READ MORE: AfCFTA To Begin Pilot Trading with 7 Countries

Mall-based businesses, which sell a lot of luxuries like clothing and home products, are anticipated to come under fire.

Given that many had anticipated an increase in sales and margins in the second half of the year, analysts at Deutsche Bank said they anticipate all of the apparel retailers the bank covers reducing their full-year outlook.

Clothing sales in the United States have been declining since the week ended March 12 and were down 15.6% from year-ago levels during the week ended July 2. This is according to credit card data from Bank of America.

In a letter to clients on Tuesday, Bank of America Securities analyst Lorraine Hutchinson stated that her company is lowering its earnings projections for the apparel sector as inventories mount and discounts spread widely.

According to Hutchinson, specialized businesses that serve customers with higher incomes, like Lululemon, may still be successful. Dom Perignon and Louis Vuitton owner LVMH hinted on Tuesday that consumers with higher incomes would still be prepared to splurge. After accounting for currency fluctuations, the business reported that its second-quarter revenues increased by 19 percent year over year, driven mostly by its fashion and leather goods segment.

A benefit of rising inflation for retailers is that price-conscious shoppers may frequent their stores more frequently in quest of less expensive home essentials. For instance, according to data firm Numerator, Walmart’s share of U.S. grocery spending increased from 18% to 21% by the end of June.

But compared to luxuries like fashion and electronics, consumables have smaller profit margins. Walmart cut its profit prediction due to this, although upping its forecast for same-store sales.

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Following Walmart’s reduction of its profit prediction and warning that shoppers are being squeezed by rising food and gas prices, shares of retailers including Macy’s, American Eagle, and Amazon all declined on Tuesday.

The big-box retailer, which also happens to be the biggest grocery chain in the nation, claimed that the cost of living is increasing for households, leaving less money for purchases like new clothing and other wants. Walmart stated that to clear out general products, it will have to give steep discounts, which will reduce its profit margins.

The announcement acted as yet another cautionary tale for Wall Street. It increased worries about changing consumer behavior and whether inflation has put an end to spending binges sparked by pandemics. Mid-August is when major retailers like Walmart and Macy’s are expected to disclose their financial results.

Steph Wissink, a retail analyst with Jefferies, said, “This is a sneak peek inside the issues and the decision-making that’s going inside of the family.”

We appear to be solidly in a “discretionary goods recession,” according to Wissink, even though economists have not yet proclaimed one.

Investors are currently sorting through months’ worth of contradicting data points as Walmart updates its outlook. While the consumer outlook has deteriorated, the labor market has remained robust. Despite the greatest inflation growth in years, airports are crowded with summer vacationers. Although thousands of Netflix subscribers have canceled their memberships, McDonald’s and Coca-Cola claim that consumers have been prepared to pay more so far for burgers and sodas.

The situation has also been compounded by other considerations. Retailers are taking advantage of a time when consumers had additional cash thanks to stimulus cheques and savings from what they would have otherwise spent on services like gym memberships, hotels, and dining out. People rushed to buy new kitchen appliances, exercise gear, and leisurewear during the pandemic, all of which have since entirely fallen out of fashion.

According to Craig Johnson, the founder of retail consulting firm Customer Growth Partners, lower-income households are spending more on necessities owing to inflation, which is the source of the decline in discretionary spending. Additionally, he claimed that people with greater incomes spend more on services like travel and leisure rather than items related to the pandemic.

He claimed that Walmart’s pre-announcement “was hardly a surprise” and would be the first of numerous of a similar nature.

One of the first businesses to warn about rough seas was Target. It twice lowered its prediction for profit margins, citing the need to cancel orders and raise markdowns to get rid of unsold goods. It attributed the issue to having the incorrect inventory, which included TVs, motorcycles, and home appliances that were popular during the pandemic, and claimed that it needed to make room for back-to-school supplies and holiday shopping.

In the last few weeks, profit warnings have been issued by Kohl’s, Gap, Bath & Body Works, and Bed Bath & Beyond. Additionally, several businesses have announced layoffs, including e-commerce platform Shopify, video game store GameStop, and online styling service Stitch Fix.

READ MORE: AfCFTA To Begin Pilot Trading with 7 Countries

Mall-based businesses, which sell a lot of luxuries like clothing and home products, are anticipated to come under fire.

Given that many had anticipated an increase in sales and margins in the second half of the year, analysts at Deutsche Bank said they anticipate all of the apparel retailers the bank covers reducing their full-year outlook.

Clothing sales in the United States have been declining since the week ended March 12 and were down 15.6% from year-ago levels during the week ended July 2. This is according to credit card data from Bank of America.

In a letter to clients on Tuesday, Bank of America Securities analyst Lorraine Hutchinson stated that her company is lowering its earnings projections for the apparel sector as inventories mount and discounts spread widely.

According to Hutchinson, specialized businesses that serve customers with higher incomes, like Lululemon, may still be successful. Dom Perignon and Louis Vuitton owner LVMH hinted on Tuesday that consumers with higher incomes would still be prepared to splurge. After accounting for currency fluctuations, the business reported that its second-quarter revenues increased by 19 percent year over year, driven mostly by its fashion and leather goods segment.

A benefit of rising inflation for retailers is that price-conscious shoppers may frequent their stores more frequently in quest of less expensive home essentials. For instance, according to data firm Numerator, Walmart’s share of U.S. grocery spending increased from 18% to 21% by the end of June.

But compared to luxuries like fashion and electronics, consumables have smaller profit margins. Walmart cut its profit prediction due to this, although upping its forecast for same-store sales.

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