The Reason Walmart Stocks Fell 11%

If there was a bellwether for the American economy, it would be Walmart which, as CNN points out, is both the country's biggest employer, as well as its biggest seller of consumer goods. And if there was ever a sign that inflation was starting to hurt consumer spending, it would be the recent earnings results posted by Walmart, and fellow big-box retailer Target, both of which missed analyst expectations when they released their first-quarter earnings this week.

Per CNBC, a combination of higher fuel prices, higher wages, and an erratic supply chain, which saw some stock arrive too late to sell and others remain on store shelves due to a lack of demand, caused the retail giant's net income fall to roughly $2 billion during the quarter that ended on April 30, a nearly 25% drop compared to a year ago. As Forbes points out, an earnings miss is highly unusual for Walmart, which had the effect of sending stocks down 11%, effectively wiping out $19 billion dollars from the world's richest family's net worth (per Fortune). That selloff was the worst Walmart has seen since 1987.

In a news release from the company, CEO Doug McMillion said, "Bottom-line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected."

Despite the stock drop and investors' grim view of the company at the moment, the picture wasn't all bad for Walmart. Same-store sales, which looks at the total amount of sales in stores that have been open for a year or longer (per Investopedia) grew 3% from a year ago, while e-commerce sales rose 1%, per CNBC. 

Unfortunately, while Walmart is picking up more customers for its grocery division, that's not doing much for profits. Chief Financial Officer Brett Biggs says that's because Walmart is selling more items that make less profit, like eggs and bread, and selling fewer of the items that could make them more money, like clothing and electronic items, which have stubbornly refused to fly off Walmart's shelves. As a result, inventory is up by 33%. The stores' senior management, including Biggs and CEO Doug McMillion, expect to see the retailer move inventory during the coming quarters. Biggs has also said that Walmart's second quarter is "off to a good start from a sales perspective."

But Walmart has some juggling to do. McMillion said they are trying to keep prices low to keep their target market, without hurting profits by letting them go. "Price leadership is especially important right now and one-stop shopping becomes more than just convenience when people are paying over $4 a gallon for fuel," McMillion said.