Walmart's Worries

The one negative on the day came from a disappointing earnings report from Walmart. Shares of the retail giant fell 11.4%, the stock’s worst day since Oct. 16, 1987, when it fell 11.8%. For historians, that’s an ominous date, coming one trading day before Black Monday. (Walmart fell only 8.2% on Black Monday, a day the Dow fell 22.6%.)

In today's report, Walmart reported better-than-expected first-quarter revenue but earnings came in below analysts' expectations, due to labor issues and higher supply-chain costs. The company also cut its earnings forecast for the current quarter and the full year. Walmart now expects its earnings per share to decrease by about 1% in the current fiscal year that ends next January. 

"Bottom-line results were unexpected and reflect the unusual environment," Walmart's CEO Doug McMillon said in the earnings press release. "U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected." 

The news spilled over into shares of other large retailers, notably those with grocery operations. Kroger fell 3.7%, while Target was down 1.4%, and Costco slid 0.8%. On a sector level, the consumer staples group was the only decliner on the day, down 0.7%. 

Home Depot offered better news on the retail front. The home-improvement retailer reported strong earnings today and raised its 2022 outlook. The stock ended the day up 1.7%.  

MKM Partners analyst Bill Kirk remains bullish on Walmart over the long-term. He notes that Walmart is playing a long game, choosing to keep prices mostly in check rather than pass along the higher costs to consumers:

This is Walmart getting more competitive on price, and setting itself up for a period of weakening consumer purchasing habits. We believe Walmart is using the input volatility storm to increase focus on market share gains by widening the price gaps to peers. 

Target will be in focus tomorrow morning. The big-box retailer reports earnings before the market opens.

My colleague Teresa Rivas has more on Walmart's rough day, along with a preview of Target's earnings.