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Retail

Walmart Expects Smaller Profit Drop As Discounts Drive Demand

Walmart Inc has forecast a smaller drop in full-year profit than previously projected, after deep discounts to clear excess merchandise and a drop in fuel prices helped it beat expectations for quarterly sales.

The blue-chip stock, which has fallen over 8% this year, rose 4% in premarket trading.

The retailer spooked markets across the globe last month when it slashed its profit forecast and warned that consumers were pulling back on discretionary purchases at a far greater pace than feared as higher prices for everything from toothpaste to gas hampered their spending power.

That forced Walmart to make steep price cuts on items such as apparel to try to reduce more than $61 billion (€60.2 billion) worth of inventory it was sitting on at the end of the first quarter.

Walmart reported inventories of $59.92 billion at the end of the second quarter ended 31 July that was still 25% above last year's levels.

"The actions we've taken to improve inventory levels in the US, along with a heavier mix of sales in grocery put pressure on profit margin for Q2 and our outlook for the year," Walmart chief executive officer Doug McMillon said.

Earnings Forecast

Still, Walmart lifted its fiscal 2023 adjusted earnings forecast less than a month after slashing it. The company now expects adjusted earnings per share to fall 9% to 11%, compared with its previous forecast of a 11% to 13% decline.

Walmart's total revenue rose 8.4% to $152.86 billion (€150.9 billion) in the second quarter, helped by demand for food and other essential items. Analysts had estimated revenue of $150.81 billion (€149 billion), according to IBES data from Refinitiv.

However, discounts on discretionary products, slowing demand for high-margin items such as appliances, electronics and clothes, and rising labor costs led to a 6.8% fall in the company's quarterly operating income to $6.85 billion (€6.8 billion).


Read More: Walmart's Long-Lasting Challenge: Luring Budget Shoppers Back To Its Stores

News by Reuters, edited by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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