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Walmart earnings miss estimates as inflation hits profits

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Yahoo Finance Live anchors discuss first-quarter earnings for Walmart and the possibility that the value retail chain may raise prices.

Video transcript

BRAD SMITH: Speaking of retail, let's talk about retail earnings season. That officially kicks off today. And boy, do we got a mixed bag of results off the jump here. We're taking a look at Walmart first, posting a big earnings miss for the first quarter, blaming the "unusual," quote, unquote, "unusual" economic environment for missing on the bottom line there.

Now, despite the unexpected miss and worrying earnings call, the retailer did raise its outlook for sales this year but cut its profit forecast here. And let's stay on Walmart for a hot second, because we said we could do the entire show on Walmart before we even started here. And a few things that jumped out, particularly from the earnings call, it's the fact that Walmart is seeing, actually, higher levels of their costs needing to be passed on to the consumer, but at the same time, that's not necessarily resulting in the ticket prices, as well, at the end of the day.

The average ticket was only up by about 3%. You compare that to the wage growth that we've watched. Walmart's seeing that even more so. You compare that to the inflation, which they talked about on the call. Their inflation, they've seen increases in this, and specifically double-digit inflation increases across grocery, particularly, that's impacting those consumers too.

BRIAN SOZZI: I could sit here at this desk for another eight hours and talk about all of the things, and map out 97 stories for our returning markets editor Myles Udland here, off this Walmart quarter because it's disturbing for many different reasons. Now, I was on that earnings call, and so were you, Brad. Walmart CEO Doug McMillon saying consumers are still spending. But in the same breath, you had the CFO Brett Biggs and its outgoing CFO of the company, former PayPal CFO John Rainey, coming in. But still, noting he's seen consumers trade down to private-label brands.

That is the first time I heard this stuff. So inflation is continuing to be a big problem. And we've been joking around for the past two weeks. O'Brien noting inflationary deli meat, but Walmart noting it, too, on its conference call. They are seeing consumers trade down to cheaper deli meat and bacon because of inflation. This entire report from Walmart is disturbing, and I'm shocked it is not pressuring the market more than it is.

JULIE HYMAN: Well, it is disturbing, but not everything in it is disturbing, in my opinion, because you are getting-- to me, the pressure on the bottom line is a combination of people trading down and Walmart itself choosing to hold the line on price. In part, because it's being forced--

BRIAN SOZZI: But not for any longer.

JULIE HYMAN: --its consumers.

BRIAN SOZZI: It's not going to happen. They talked--

JULIE HYMAN: No, it is saying that.

BRIAN SOZZI: But they talked about, on this call this morning--

JULIE HYMAN: McMillon said price leadership is especially important right now.

BRIAN SOZZI: It is important. But they did tease. And here's another headline too. Walmart-- shopping at Walmart is about to get a lot more expensive. They said they're--

JULIE HYMAN: A lot more expensive?

BRIAN SOZZI: A lot more expensive. They said they were going to be trying to hold the line on opening price point food items, but other categories-- at least my interpretation from what McMillon and the CFO said on the call-- those price points are going up. If you want a new bike, it's probably going to go up significantly at a Walmart.

JULIE HYMAN: Well, OK. Well, OK.

BRIAN SOZZI: And if it goes up at a Walmart, it's going up at Target too.

JULIE HYMAN: Back up. Where are you getting significant-- you're talking about big magnitude here. What did they say that indicates to you that there is a big magnitude--

BRIAN SOZZI: They said they are trying to-- they're going to try to hold the line on opening price point foods but will look for opportunities to push through inflation on consumers.

BRAD SMITH: But they said that the double-digit inflation that they're seeing within the grocery department, they are concerned that may continue to increase right now. The only place right now that they actually have that, perhaps, pricing power to actually roll back some of the prices, it seems to be in apparel right now, in terms of what they said on the call. They said part of what's driving inventory up is food and that being inflated right now, too.

JULIE HYMAN: One more note that maybe is not as negative, although, obviously, the shares are down. The company did raise its comp sales forecast for the full year. Now, how much of that is because of what they're going to be doing on pricing, how much of it is just because of demand. So their full-year comparable sales forecasting-- constant currency is now 4%. It had been 3%. US comps are going to be up 3 and 1/2%. 3% was the prior forecast there.

And you have to keep in mind that, while Brian Sozzi here is very alarmed at this, Walmart does tend to perform relatively well in a recessionary environment, because people do want to save money. So Walmart is in a position where, yes, it's going to take price increases where it can. But in the past, we have seen Walmart hold the line and take that margin hit on a lot of different items. But we'll see what that management looks like this time.

BRAD SMITH: And the question is, on what type of volume is that on too? Because e-commerce sales, that was a dud in this most recent quarter. That only grew 1%. That's a particular line where-- they talk about in the past, looking for that continuous e-commerce growth to actually sustain how much they're able to get the consumer into other categories, because online-purchasing groceries is far different than if you're in a Walmart and walking by those departments. However, online, they can at least serve up those other buying opportunities or tandem purchases that somebody may make.

So the e-commerce quarter that we saw here, or lack thereof, that's something that-- particularly for me-- would be alarming.

BRIAN SOZZI: Another red flag, real quick-- and I'm going to pat ourselves on the back here. Inventory-- we highlighted this yesterday, I think, to watch. Up inventory, up 32%. Walmart's quarter up 31%, and Home Depot. Walmart acknowledging they have to work through inventory to a large degree this quarter. They saw a hundred million worth of markdowns in the most recent quarter. And this is not just a Walmart problem. It's likely high inventories at Target, likely-high inventories at Macy's-- this is a major problem as these companies report earnings in the next two weeks.

JULIE HYMAN: Yeah, it sounds like, basically, they had a pandemic-era mindset of getting merchandise in the door while they could, and now they are not moving it out of the door quite as quickly.

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