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Walmart’s Profit Falls Amid Rising Inflation

Industry: Hypermarkets, Supermarkets and Hard Discounters
Current: Company Performance

On May 17, 2022, Walmart’s share price decreased over 11% to $131.35, the biggest single-day percentage drop since 1987.
Walmart’s net profit decreased to $2.05 billion in Q1 2022 from $2.73 billion in Q1 2021.
In addition to high inflation, increasing operating costs and elevated inventory levels are the major concerns for the company.

On May 17, 2022, the share price of Walmart—the world’s largest retailer—fell more than 11% to $131.35, the biggest single-day drop in share price since 1987. The stock price plummeted to a 52-week low after the company’s quarterly results fell far short of the expectations of investors. The retail giant lowered its earnings prediction for the year, indicating a substantial fall in profit margins.

Walmart's total revenue increased to $141.57 billion in Q1 2022 from $138.31 billion in Q1 2021. However, quarterly net profit decreased to $2.05 billion in Q1 2022 from $2.73 billion in Q1 2021. Adjusted earnings per share (EPS) fell short of expectations, falling by 23.1% year over year (YOY).

High Prices of Fuel and Food

The high inflation, specifically in the prices of fuel and food, put greater pressure on the company’s profit margin. The food price index increased to 9.4% in April 2022. The energy price index increased to 30.3% in April 2022, according to the Bureau of Labor Statistics. The Russia-Ukraine conflict, COVID-19 disruption, and unfavorable weather conditions are the major reasons contributing to the high prices of fuel and food.

Increase in Operating Costs and Lower Profits

The high cost of labor and a quick return of employees from COVID-19 leave resulted in overstaffing, increasing operating expenses by 4.5% as a proportion of net sales during the quarter.

Walmart continues to increase its market share in food and health and wellness products, one of the top-selling categories. However, the company sells more low-margin commodities such as eggs and bread and fewer higher-margin items such as apparel and electronics, putting a damper on profitability.

High Inventory Levels

The inventory levels increased 32% to $61.2 billion in April 2022 from $46.3 billion in April 2021 as the company made aggressive purchases to stay ahead of inflation and ensure the availability of stock. Besides, some inventory remained in warehouses, especially seasonal goods such as gardening supplies and plants and pool chemicals, due to unseasonable cold weather in the US.

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