Shares of Amazon falls as Walmart lowers full year outlook

After market close on Monday, Walmart revealed new estimates for adjusted earnings per share. It said there will be a decline by 8% to 9% for the second quarter and 11% to 13% for the full year.  Earnings were previously expected to be flat to slightly higher for the second quarter and to decline by 1% for the full year.

The retailing giant attributed the change to rising inflation, specifically in the price of food and fuel, which it claimed is influencing how its clients spend. Additionally, it stated that, excluding gas, it anticipates same-store sales in the United States to increase by around 6% in the second quarter.

Customers are spending more on necessities and less on non-essentials, which encourages discounts.

Investors are growing more worried that stores will have to heavily discount unsold inventory as prices are rising, consumers are shifting their spending from goods to services, and retailers are attempting to stock up on holiday merch early in order to avoid the supply chain problems that plagued the industry previously in the wake of coronavirus pandemic.

Even though this represented higher food costs, where inflation is already climbing rapidly and the company generates lower profit margins, Walmart announced that comparable sales in its US locations will be stronger than previously forecast, up 6% in the second quarter minus fuel.

While Walmart made tremendous headway eliminating "hardline" goods, apparel in Walmart U.S. requires more discount, according to CEO Doug McMillon, as rising food and fuel prices affects how customers spend.

In Q2 2022, Walmart claimed to have "made progress reducing inventory" and has been managing prices to account for inflation and rising supply-chain costs. The beginning of back-to-school season was also encouraging, according to McMillon, but he cautioned that general merchandise sales will be under "more pressure" in the rest of the year.

Walmart, like some other US multinationals, is feeling the effects of the dollar strength, which caused a "headwind" of roughly $1 billion in sales during the second quarter. It anticipates a currency hit of $1.8 billion in the second half based on current exchange rates.

Walmart's statement caused its stock to drop almost 10% to $118.97 and sparked a sell-off in rival companies' stock, including Target, Costco, and Home Depot. Amazon's stock dropped by more than 4%.

Over 8% of Walmart's stock dropped during extended trading. The news alarmed investors in other stores as well. Target and Costco shares fell as much as 5% and 2%, respectively, while Nordstrom's stock fell as much as 3%.

When Walmart cut their guidance for the upcoming quarters for the first time in May, its shares saw their largest one-day decline since 1987.

Amazon is anticipated to disclose second-quarter profits on Thursday. Wall Street will be keeping a careful eye out for any indications of how the world's largest online retailer is handling inflationary pressures, a slowdown in consumer spending, and ongoing supply chain challenges.

As a result of Walmart's announcement that it was cutting its quarterly and full-year profit outlook, shares of Amazon dropped more than 4% on Monday in extended trading.

Brian Olsavsky, the CFO of Amazon, was questioned about the state of consumer spending during the company's earnings call for the previous quarter. He said Amazon had not detected any softening.