Walmart expects lower earnings in 2023, cautious on economic outlook

Walmart Inc was cautious on its 2023 economic outlook on Tuesday, as the retail leader forecast full-year profit below estimates and warned that contained consumer spending could pressure profit margins.

Shares of the world’s largest retailer fell 4.6% to $139.75 in premarket trading as the company continued to battle price hikes from many of its product suppliers in a high-inflation environment.

Rising consumer prices in the United States, amid rising rental housing and food prices, have raised fears that the Federal Reserve will further raise borrowing costs to cool domestic demand, triggering a economic slowdown in the second half of the year.

“There is still a lot of unease and uncertainty around the economic outlook. Balance sheets continue to thin, the savings rate is about half of what it was before the pandemic, and we haven’t been in a situation like this where the Federal Reserve raise (interest) rates at the rate that it does,” Chief Financial Officer John David Rainey told Reuters.

Walmart forecast earnings of $5.90 to $6.05 per share for the year through January 2024, compared with analyst estimates of $6.50, according to Refinitiv IBES data.

Investors in Walmart, which operates more than 5,000 stores in the United States, have been watching the retailer’s efforts to negotiate better prices from its suppliers and protect itself from competition from rivals such as Target, whose products are relatively more expensive.

Consumers, pressured by inflation, are increasingly turning to buying groceries and consumables over general merchandise, which Rainey expects will continue this year and weigh on margins.

This has affected Walmart’s consolidated gross profit rate, which fell 83 basis points in the Christmas quarter, mainly due to sales and sales of lower-margin products.

Even so, Walmart posted strong demand in the quarter ended January 31, with total revenue of $164.05 billion, up 7.3% from last year. Analysts had expected revenue of $159.76 billion. Comparable sales in the United States increased 8.3%, excluding fuel, thanks in part to higher prices and e-commerce sales.

Adjusted earnings per share were $1.71 for the quarter, well above median expectations of $1.51. The firm also raised its annual cash dividend by about 2% to $2.28 per share for fiscal 2024.