Walmart Raises Sales Outlook, Lowers Earnings Outlook, as Inflation Bites: Shares -10% Afterhours. Target, Amazon Sag

Food sales are hot, but some other merchandise, “particularly apparel,” requires markdowns to get moving.

By Wolf Richter for WOLF STREET.

Walmart came out today with what is essentially a warning about the impact of inflation that is boosting sales – and it raised its sales guidance today – but is cutting into profit margins – and it lowered its earnings guidance.

In May, in its Q1 earnings call, Walmart said it had gotten caught on the wrong foot “by unseasonably cool weather” and other factors that left it overstocked with items “such as apparel, patio furniture, and landscaping supplies,” which is a classic retailer problem, to which Walmart reacted in a classic way, by lowering prices to get this stuff out the door.

Today, it came out with the diverging guidance for Q2: Higher sales, but lower profit margins, and lower earnings per share than indicated in May:

  • It raised its guidance for comparable sales growth at Walmart U.S. to 6% excluding fuel, up from its previous guidance in its Q1 earnings report of 4% to 5% growth.
  • It lowered its guidance for operating income (now to decline by 13% to 14% year-over-year) and for adjusted earnings per share (to decline by 10% to 12%).

There was a dual message in the warning: We’re dealing with consumers’ reaction to raging inflation, and we ordered the wrong merchandise, and are having to cut prices on the wrongly ordered stuff, “particularly apparel,” to move it, and we’re moving it.

“Food inflation is double digits,” it said, which is corroborated by the CPI for Food at Home, which jumped by 12.2%.

“Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery,” it said.

With customers spending more money on “food and consumables” at Walmart, and with Walmart’s comparable sales increasing by 6%, the mix has changed toward food and consumables, and away from other stuff where profit margins are higher.

This shift in mix to food and consumables is “negatively affecting gross margin rate,” it said.

The other pressure on its gross margin is the effort to clear inventory of general merchandise, particularly items that it had mis-ordered and that consumers no longer wanted to buy, which means markdowns to move the stuff, “particularly apparel.”

While Walmart “made good progress clearing hardline categories” – presumably the patio furniture, landscaping supplies, etc. that it had pointed to in May – “apparel in Walmart U.S. is requiring more markdown dollars,” it said.

But back-to-school season is starting out OK, and Walmart is “encouraged” by the start on school supplies.”

Retailers sell goods, but consumer spending shifts back to services.

It has by now been well documented month after month that consumers are shifting their spending back to discretionary services – such as travels, sports and entertainment venues, or elective healthcare services – where spending had collapsed during the pandemic. And the stimulus-fueled binge-spending on goods is reverting to pre-pandemic trends.

Retailers hugely benefited from this stimulus binge spending on goods, and now they are getting hit by this shift back to services. That much was expected all along.

Walmart pointed at another nasty effect of inflation: It’s a zero-sum game for households, and food comes first, and food-inflation is raging, so there is less money left over to spend on other stuff.

And there was a terse comment on the abating supply chain chaos: Walmart said it “made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers.”

Shares sagged afterhours.

  • Walmart shares [WMT] plunged nearly 10% to $119.31 at the moment, back where they’d plunged to in May after its Q1 earnings report. They’re down 26% from the peak in April.
  • Target shares [TGT] dropped 5% afterhours to $149.00, back where they’d plunged to in May after its earnings report. Down 44% from the peak last July.
  • Amazon [AMZN] dropped 4% afterhours to $116.30, down 38% from the peak last July.

Inventory gluts here, shortages there.

What we see here unfolding is the dual impact of, one, consumers shifting their spending back to services, from the stimulus-fueled goods-buying binge; and two, consumer struggling mightily to deal with this raging inflation, with food, gasoline, and rent eating up a bigger portion of the budget. Something has to give – and that may be apparel and patio furniture and other stuff that people had splurged on in the stimulus era.

At general merchandise retailers, such as Walmart and Target, inventories have jumped. Building materials and garden supply stores got just a tad heavy on their inventory. But grocery stores have finally gotten their inventory levels back up to normal, from the empty-shelves era. And at auto dealers, new-vehicle inventory is still stuck near record lows, and used-vehicle inventory remains a little lower than normal. Auto dealers make up about one-third of total retailer inventories.

This inventory glut exists in only a small-ish segment of all retailers — general merchandise retailers, which account for only about 10% of total retailer inventories — and with only part of their merchandise.

And overall inventories at all retailers put together, measured by the inventory-to-sales ratio (which largely excludes the effects of cost increases) is still way below normal (data through May from the Census Bureau):

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  118 comments for “Walmart Raises Sales Outlook, Lowers Earnings Outlook, as Inflation Bites: Shares -10% Afterhours. Target, Amazon Sag

  1. Cowboy Logic says:

    So we go from Inventory shortages to overstocks–overnight. Might it be that the folks who really never wanted to work anyway have switched from wanting stuff to wanting experiences (services?) And was it caused by the fact that our fearless leaders have trained an entire generation or 2 that they really didn’t have to work because we will forgive student loans, keep them from beng evicted as either homeowners or renters, give them free everythng, including thousands in helicopter money, and tell them it’s OK, just don’t look up?

    • ru82 says:

      Local Aldi stocked a lot of outdoor furniture at the beginning of the summer. They just started marking it down. I have been watching. A patio tent stack has only had 1 out of 20 sell all summer.

      2020 and 2021 was the year of the backyard lawn. 2022 was about travel.

    • Cem says:

      Turns out cowboy logic is a bit flawed when it comes to macro economics and generational affects on economic output.

      Keep at it though 🤠

    • Wolf Richter says:

      Cowboy Logic,

      “So we go from Inventory shortages to overstocks–overnight.”

      RTGDFA and ALL of it, all the way down!!!!!!!!!!!!!!

      I wrote it precisely so I wouldn’t have to read this BS in the comments. And sure enough, there it is, utter BS, hogging the first spot trying to hijack the comments.

    • Wolf for Fed Chair says:

      Hey Cowboy! Those stimies and bailouts have been even more for the owner class!

    • Escierto says:

      You do anyone who is an actual cowboy a disservice with that name. I suspect in your case, you are all hat and no cow, as we used to say in Oklahoma.

    • Miller says:

      There’s a lot of fault to go around on the student loans at least. A lot of students no-doubt took on way too much there, but the primary failure is the stupidity of using a debt-financed higher education system to begin with, to get essential skills for employability. Despite the stereotype, most students don’t major in oceanside basket-weaving or feminist theory, they major in business-related fields or STEM. But university costs in the US have soared so much that even public universities lead to a huge amount of debt (even if doing community college). And unfortunately, American companies make it harder and harder to bypass the US student loan debt racket since HR departments often won’t even look at a CV if someone doesn’t have a college degree–it goes right into the trash. So what are students to do when jobs require that college diploma even for basic trades, but even public universities are becoming unaffordable due to the education bubble portion of the Everything Bubble?

      Again, while certainly there are some US students who were financially irresponsible, the ultimate fault lies with the stupidity of a debt-financed, ultra-expensive higher-education system which the United States uniquely has. (Canada, Australia and the UK also use debt financing but not to the same level as US colleges with sky-rocketing tuition) In Europe, students graduate debt-free, and before the usual “nothing is free no free lunch” talk comes in, the EU manages it because they’ve rejected the “everyone should go to college” thinking–most H.S. graduates do apprenticeships in fields they’re good in and like to do, and you only enter university if you’re academically competent (only a fraction of graduates). And because European grads finish with no student loans, they’re better able to focus on family and career-building and starting new businesses (a lot easier without the student debt ball and chain), which winds up more than covering university costs through more hiring and employment and more in tax revenue. (EU countries generally have a higher labor-force participation rate than the US.)

      Not saying that mass debt forgiveness or a debt jubilee is the answer in the USA–my wife and I had to work and save for years to pay off our student loans–but the problem is the dumb system that was started in the first place. Maybe a one-time partial (as in low level) of loan forgiveness might help, but even then, the need is to fix the underlying systemic problem of debt financing. Since American colleges and universities have had federally guaranteed student loans, they were under no pressure to restrict their costs and kept raising tuition without checks or balances, compared to European universities with cost controls due to lack of debt-financing. Irony is that for all the talk of Europe being socialist, it’s the US that’s been using a very inefficient socialist model for higher education. Like the housing bubble and healthcare bubble, it was incredibly dumb to make another bubble in such essential part of society.

      • Jon says:

        There is no motivation to do systematic cleanup.
        All these forgiveness programs are just ways to buy votes.

      • John Moyer says:

        “Maybe a one-time partial (as in low level) of loan forgiveness might help”
        I would suggest a government program where people with student debt can pay it off by volunteering. (ie $50 bucks an hour). One could volunteer to help people. If they dont like people, volunteer to help animals. If they don’t like animals, volunteer to help the environment. Don’t care about the environment … help some non- profit do some forensic accounting looking for waste and/or fraud. Or help law enforcement on cold cases. Whatever would help make society better. Anyway, it seems a system that generously rewards one for their work output is much more preferable than cancelling loans to tackle the problem of student debt. It still addresses the predatory aspects of the lending culture, as well as moral hazard and personal accountability.

      • Jon says:

        As one with a STEM degree, having a STEM degree is not a guarantee of getting a good job. I was told by recruiters that work for a large company in the Seattle area that as long as they could get H-1Bs for cheaper, I’d be out of luck.

        Companies flat out lie when they say they need more STEM graduates. If these large tech firms start laying off people, who will go first? Americans or H-1Bs?

        Note: Not the same Jon who replied to you earlier.

      • Valerie from Australia says:

        Miller,
        This is an excellent summary of a systemic problem.
        I might add a couple of points. Higher education is a business looking for as many customers as possible. Consequently, standards are going down – perhaps not in the elite schools, this I do not know – and prices are going up. Many private universities have a scam where they offer “scholarships” which cover a quarter or a third of an obscenely high tuition. Students are flattered and seduced into choosing that school resulting in students coming out with $80,000 plus in loans with only starting incomes to pay it back. We also seem to have a fairly, financially innumerate generation. Almost all of these students are racking up tens of thousands of student loan debt not really understanding how long it is going to take to pay it back. Students are not getting just the government loans but are also going to private banks – through the “financial aid” system – which totally rip them off. So, the debt they incur is compounded by comparatively high interest loans that can last ten or more years.
        There is also a cultural difference. In Australia, due to demographics (most of our populations are around urban centres) most students live at home whilst studying at university. This saves all the living expenses that U.S. students generally have to fork out to study away from home. There is no negative stigma attached to this and students accept this as normal.
        Last – and this is on the students – most of the students at Uni today, expect a higher standard of living than when many of us went to college. When I lived in Germany and my husband studied in London and South Africa, students often lived in very humble digs. Students not living at home with their parents, lived in old buildings and houses, renting a room with the shared toilet and shower down the hall. They drank cheap wine and ate pretty humble food. This was seen as “student life” and the young students wore it like a badge of honour. I don’t get the impression many young people would be willing to live this way – even if it were available in university towns today.
        I agree with you, Miller. The higher education system, like opportunities to buy a basic “starter” home, is broken and invites a terrible debt burden that young people forty years ago, who wanted to “better themselves,” just didn’t have to undertake.

    • LK says:

      This “maybe they don’t want to work” political crap is tired. It says more about the commentator than the reality of life in America for people today.

      We get it, you’re one of the good ones who everyone else should measure up to, if you genuinely believe that reductionist BS narrative.

  2. Sporkfed says:

    Largest civilian employer.

    • Flea says:

      Cramer says target ,wal mart and other retailers getting hit hard by shoplifting.CEO,S don’t know how to stop it . Guess they dont teach silver spoon,Ivy League management loss control.

      • El Katz says:

        They’re afraid of the lawsuits if an “inventory control officer” injures a thief. Conversely, they’d get sued if the thief shot/stabbed the guard / clerk who was attempting to apprehend them.

        Many stores have policies that punish an employee for apprehending a shoplifter. Certain states don’t even bother to prosecute the thief if they do get caught – they’re out on the streets in a matter of hours.

        • Flea says:

          Total bs consumers pay for this bad behavior,what happened to rule of law hide part time police officers problem solved

        • phleep says:

          It is the managers’ responsibility and business to manage risks in their stores. It is their call, for their agents (employees) to follow their instructions. No doubt they monitor the overall situation, and they have the vantage point to do it and make the calls in the overall interests and risks their businesses face, within the outer boundaries of conduct the law allows.

          My job as an employee of any business is to follow all lawful instructions. If I don’t like the instructions, I can quit. It is not the employee’s job, or yours or mine in a comments section, to think we know better on these policies and decisions. Feeling resentment about shoplifters or social or political issues is not a substitute for someone’s proprietary business judgment or risk management. That is THEIR business. And they can pick the titles or names for jobs too; not you.

        • Miller says:

          yeah had been hearing about things like this. Korean shopowner in a part of Texas where I spent some years as a kid, still there all these years later. He had a bad shoplifting incident a couple months ago, I asked him why he didn’t try to apprehend the thief when it was caught on tape. “Too much trouble, too many issues even if you catch him” he sighed. It’s especially unfortunate when these things happen to the small-business owners without much of a margin, but even then they’re stuck writing it off as a loss.

  3. Phoenix_Ikki says:

    Bullwhip effect well and alive. Next 6 months will be interested, heard Nvidia is now also delaying their launch of the next generation graphics cards due to over supply of current gen and possibly producing too much of next gen.

    • Wolf Richter says:

      Crypto mining rigs are suddenly no longer needed. And everyone bought a new laptop in 2020 and 2021, and they’re still working, so why buy another? But automakers still cannot get enough microcontrollers and trailing edge chips that cost $4 to go into rear-view mirrors.

      And if you try to fly on vacation, expect to deal with mayhem because everyone is flying everywhere, because services are where people are now spending their money, not laptops.

      • Phoenix_Ikki says:

        LTT (Linus tech tips) also talked about automakers didn’t do themselves any favor either. They insisted on using older, less efficient design chips and fabs want to focus on latest generation instead due to economy of scale and overall higher demand/cost efficient. Couple that with the insane demand from Crypto before, really is a perfect storm.

        For Nvidia though, I am ok with them taking a beating getting stuck with inventories and have to deal with the repercussion now. The way they bend their consumer base up the A$$ the last two years, it’s only a small sliver they get to enjoy now..

        • RockHard says:

          Right they insisted, and chipmakers insisted in focusing on the highest margin items. Something has to give. Markets get ugly, we’re just not used to having the consequences.

        • Dave Chapman says:

          Phoenix: You are correct. Traditionally, the fab companies sell their six-year-old stuff the trailing-edge guys.
          It’s a moderately nice lifestyle, in that these chips were designed into various products and sales will continue to flow for decades, although at generally lower volume and lower unit prices. People who run trailing-edge fabs have a rather wry sense of humor.

          “We make ’em like they used to!” What a great slogan.

          The problem is that Moore’s Law ended in 2010, and all of the new processes have gone vertical, as in “finfets”. As a result, there is kind of a shortage of obsolete fabs which were originally built in 2014 and 2015: Those fabs are not actually obsolete, and are still producing SOCs, ASICs, etc.

          The car companies were smart enough to notice that trailing-edge chips occupy a sweet spot on the cost-performance curve and make a lot of sense for intermediate-production-volume products like automobiles.
          Too bad that Moore’s Law ended and they are now stuck having to figure out how to get chips from an industry which really didn’t like them in the first place.
          So sad.

        • Rowen says:

          I was speaking to my commercial equipment vendor, who proudly displays “Made in the USA” on all their products, about their lead-times. He said it’s about 18 months, because they’re having so much trouble getting OEM control boards from China. Apparently, the legacy nodes chips were made in the US, shipped to China to be assembled with other electronic components, then shipped back. However, because of the chip sanctions, some suppliers were prohibited from importing any chips from the US, even $4 ones.

          Such a flustercuck

        • Digger Dave says:

          Well auto makers have been doing the same thing, even before the pandemic. Short-sightedly going for broke on high profit vehicles, which is why the Big 3 gave away the normal size car market. It’s also made it very hard on tradespeople, who have had a hard time keeping work vehicles on the road as essential parts on basic vehicles are unobtainable or have to compete with van-lifers and Amazon buying up all the stock of new work vans. We had CAFE, which is such a joke that it was so watered down as to be laughable. We should have forced bailout motor vehicle manufacturers to make basic safe vehicles readily available. When the bottom of the vehicle market disappears it’s another large punch in the gut to the working class segment of the population that we are so dependent on. The “free market” works great on paper. In the real world hyper-consolidation and collusion is a raw deal.

      • 8_mile_road says:

        // And if you try to fly on vacation, expect to deal with mayhem because everyone is flying everywhere, because services are where people are now spending their money, not laptops. //

        When will people no longer have the $$ to spend? I am curious. If this happens, perhaps the flight tickets price will come down?

        • Wolf Richter says:

          “When will people no longer have the $$ to spend?”

          There will always be lots of people who can “afford” to fly, enough to fill up the planes. The question is: will they be willing to fly if they feel their job is at risk, etc.

          If 2-4 million additional people get laid off during a recession, the other 150 million still have jobs that pay about the same, and they can go on as normal. But often they don’t. Uncertainty changes their behavior. And some of them will be skipping trips. And more of the seats will be empty.

          But not yet apparently. San Francisco is teeming with tourists.

        • stever says:

          It’s happening on SouthWest airlines already. I booked to flights in April 2022 for travel in Sept 2022. I checked over the weekend and both flights were $100 less round trip. I rebooked the exact flights and got a $100 credit for both trips. And one of the trips is over Labor Day weekend.

        • rojogrande says:

          We went to SF last weekend so I had an opportunity to verify the tourist reporting on Wolfstreet. Holy-moly crowds is an apt description.

      • otishertz says:

        Does anyone really need a microchip in a mirror? It’s a mirror! Will it make me better looking or give me compliments? How complicated can it be to look behind you?

        All sorts of previously normal human abilities are being replaced by technology and it is infantilizing people.

        • COWG says:

          “ Does anyone really need a microchip in a mirror? ”

          Otis,

          Need… no…

          Want… yes…

          Swapped out the plain mirror in my new Tacoma after the first night trip…

          Bought a new used chip mirror with auto dim , compass, and garage opener…

          After having and being used to the above for the last 30 years, I did not realize the comfort level I had gotten used to….

          I R now a happy infant…. :)

        • Wolf Richter says:

          There are a lot of functions built into a modern rear-view mirror, and it’s not to look at yourself (I hope).

        • Dan Romig says:

          otishertz,

          As I have commented, there are two types of machines these days. Both have their place.

          My newer motorbike can be used with or without computer assisted wheelie control. My older motorbike, which has a lot of power and performance does not have the computer technology.

          When I ride with the wheelie control engaged, it is safer and faster. The computer keeps the front wheel on the ground at the limit of acceleration. I could do it myself, but not as fast or precisely. Why not use technology to make the riding experience better?

          The bike that replaced mine has a four times faster CPU with more data inputs going to it. It is a better machine because of it’s advanced technology.

          As I’m heading to the farmers market across town in a minute, should I ride my 2005 Vespa PX125, or my 2002 Kawasaki ZRX 1200, or my 2019 Aprilia Tuono V4 1100? They all will do the job, but I’m taking the V4. It rides the best.

        • otishertz says:

          Dan Romig,

          People turn off the traction control and ABS when riding off road for a reason.

          My only point is that at some point the tech becomes excessive and replaces normal human abilities. Leaving people dumber and dependent on “chip” based crutches.

          What is a mirror with video and touch screen capability?

          It is no longer a mirror.

        • phleep says:

          I can think of nothing as contemptible as a chip in a car mirror. Does “sucker” mean anything to you?

          Taleb has a dug up word for it: iatrogenic. It means coming up with a stupid worthless cure or “innovation” that is worse (and more degrading) than what was here before it. In a world choking on its own waste, this is beneath disgusting.

          It is like the morons consulting their electronic monitors more than exercising their bodies. Good word: infantilizing. It creates new dependencies, addictions, expenses.

        • JeffD says:

          The more electronic crap you put in a car, the more likely it will break. More revenue for the service department.

  4. Depth Charge says:

    “And at auto dealers, new-vehicle inventory is still stuck near record lows, and used-vehicle inventory remains a little lower than normal. Auto dealers make up about one-third of total retailer inventories.”

    Of all industries, carmakers shat the bed worse than anybody. The numerous news stories about them hurrying up and canceling their chip orders right at the beginning of lockdowns seems to explain why everything else is now in plentiful supply – except new cars. For how long can these clowns continue to struggle? What a joke.

    • Nate says:

      US auto manufacturing management is a clown show. It’s infinite demand for fuel efficient or electric cars and they’re barely able to make more expensive and inefficient trucks/SUVs, for want of $5 chips.

      They can’t even figure out a way to pay $$$ to cut the line. Sure appliances manufacturers have bigger orders but I bet they would give up their spot for easy $$$. Everything can be bought, except for $5 chips. Then the sanctity of contract must be respected.

    • Nathan Dumbrowski says:

      I saw a truck on a dealer lot yesterday that had a six figure price tag in the window. $104,567. I was shocked.

      • Miller says:

        Been seeing this too. Close to $110K in a few cases for pickups, and there are parts of Texas where the demand for the trucks is so high that the dealers will regularly break $100K, raise the sticker prices on a dime as part of an implied bidding war. Thing is, incomes really aren’t anywhere close to that high in most of Texas (not even in Austin or the metros, much less in the sparse desert rural areas where the pickups are most popular).

        So in any sensible system, prices should come way down where people could actually afford to buy them with their savings and what their salaries would realistically pay for over a few years. But too many Texans are just drunk on debt. “No big deal, we’ll just pay it later”. That’s a big part of why the US got in this mess in the first place, with the housing bubble and other asset bubbles. In cultures where it’s expected to cover things with earnings, costs stay lower to remain in line with people are earning. But when credit is too loose and plentiful, not only is there too much of it, but the culture itself changes and consumers binge even on things they don’t need without restraining themselves when prices go too high, since “we’ll just pay it down later” (even if they can’t). That’s another reason for this inflation we’ve been seeing, all the cultural changes that make such high debt acceptable. Bad enough in housing and student loans, but auto loans are swelling a lot too.

        • Valerie from Australia says:

          “In cultures where it’s expected to cover things with earnings, costs stay lower to remain in line with people are earning. But when credit is too loose and plentiful, not only is there too much of it, but the culture itself changes and consumers binge even on things they don’t need without restraining themselves when prices go too high, since “we’ll just pay it down later” (even if they can’t).”
          I completely agree with this and I see it in the U.S. and Australia. I was really surprised to see that credit card debt is down in both countries because so many people of the middle and working classes seem to be spending like there is no tomorrow. And a lot of people in Australia put their kids in private schools, even in rural areas – even working class folk.
          Surely, a lot of this is funded by credit. But where is the credit coming from?

      • Depth Charge says:

        A lot of the people buying those trucks, and especially the ones paying over sticker like that, don’t even use the trucks for what they were designed. A neighbor Realtor just bought a brand new 1 ton Ford diesel and he doesn’t even have anything to tow.

  5. ru82 says:

    WSJ has an interesting article. Upper middle class getting squeezed.
    Things may get interesting if there really will be a recession and and Mr Yu has some of his renters quite paying rent for whatever reason.

    ————————————————————–

    Mark Yu (looks like he is in late 20s) had a profitable pandemic. Like many Americans, he added to his savings and pulled in big gains from the stock-market rally. He purchased a house in his new hometown of McAllen, Texas, then a duplex and an eight-unit apartment complex in Cleveland.

    But 2022 hasn’t been so kind. His expenses have grown because of higher costs for gas, groceries and the dog food for his four German shepherds. The value of his stockholdings is shrinking. He is sending more money back to his family in the Philippines to help them cope with rising prices there. A cracked foundation in his new house cost tens of thousands of dollars to repair.

    Mr. Yu, a 33-year-old who has lived in the U.S. since 2014, is now taking on credit-card debt and typically working seven days a week. Previously, he was socking away as much as $3,000 a month into a brokerage account. This year, a couple-hundred is the most he had been able to muster and he hasn’t put anything in for the past three months.

    His story is similar to that of a number of upper-middle-class Americans who are seeing their two years of pandemic gains eroded.

    • Phoenix_Ikki says:

      Why do I have 0 sympathy for someone like him? Doubt and hopefully he is not asking for any but that living large mentality and complete obliviousness to the flipside is sadly way more common in consumer culture.

      The part about sending money back to the Philippines offer some interesting insight.

      • COWG says:

        My rule one…

        Doesn’t matter what I can get short term…

        What does matter is what I can keep long term…

        It appears the day of the previous high flying whiners is upon us…

      • Miller says:

        yep, agree and cases like this multiplied over millions are a big reason why Americans are stuck with record levels of debt and why we have this inflation and crazy asset bubbles right now. This assumption of “stocks only go up, home prices only go up” combined with a shift in US culture to tolerate massive debt, has led to these ridiculous levels of leverage and excess, and prices rise because costs are no longer disciplined by expectations of debt-limitation and preparing for future downturns. This guy in the WSJ article wasn’t even raised in the US but he clearly absorbed that part of the culture–4 German shepherds? Just the time in the day to walk the dogs would eat into earnings, not to mention all the costs. Who does this, esp if someone has job and family responsibilities?

        The cracked foundation problem sounds like he bought his home without doing an inspection in a bidding war, and “a duplex and an eight-unit apartment complex in Cleveland”–it all sounds like FOMO and “real estate will never go down, the Fed will always prop up prices” on steroids, just like Kunal’s posts here. One of main drivers of the Everything Bubble. It’s also why a very, very deep recession in early 2023 is not only likely, but probably necessary. It’s essential not only to break these asset bubbles, also for adding a bit of common-sense back to the culture about the need for prices to stay back in line with actual incomes, and restrain future asset bubbles as they form.

    • Flea says:

      Just a different form of leverage,getting squeezed HURTS

    • Augustus Frost says:

      Sounds like he is overextended, nothing out of the ordinary in America over the last several generations.

      • Miller says:

        100 percent true. The expectation of being overextended, massively leveraged and FOMOing asset bubbles higher than drives up costs everywhere else. Very frustrating for savers and the frugal.

  6. ru82 says:

    oops. I guess he is 33.

  7. Nate says:

    So, setting aside the service vs. goods spending issue (complicated), if the thesis is that food inflation is biting into goods inflation, has there been anyone doing any deep dives into whether the food inflation is primarily driven by domestic vs. foreign causes?

    My read of this USDA chart suggests that our exports are up, which is cool for US farmers, but I have no clue if that means inflation is being driven by UKR/Russian war and foreign issues, or if it’s mostly domestic inflation showing up at the grocery store. https://farmpolicynews.illinois.edu/2022/05/usda-forecasts-record-farm-exports-in-fy-2022/

    Ironic if the the guys who seems to be doing pretty good during the Biden administration are domestic oil/gas producers and US farmers, while the Silicon Valley party got shut down by the cops. No wonder Dems want him gone, he made the wrong guys money.

    • Anthony A. says:

      Thanks for posting the link. I’m surprised we are exporting so much farm product given the drought and the after effects of the pandemic, the Ukraine situation and recession that brewing.

  8. SpencerG says:

    The “Powers That Be” need to get a grip on reality. As inflation hits food, gas, and rent there is simply less money in the family budget for other things.

    As Walmart said, people are spending more money in their stores… just not on things that have larger markups. It is going for groceries instead. I spent $41 there tonight and left with only three bags of groceries.

    This is going to get worse before it gets better. My guess is that restaurants will be the next to take the hit… eating out two nights a week instead of three isn’t much of a sacrifice for families… but kills restaurant profitability.

    • otishertz says:

      $41 for three bags of groceries. Are you eating only rice cakes with ketchup?

      • phleep says:

        3 bags of high quality grocs for me (mostly premium salad stuff, lots of high protein too) today, $42. That’s four days’ food. Rice cakes and ketchup are for suckers. Yes, and this is in the despised coastal California. Don’t people learn to shop smartly?

        • Venkarel says:

          I find that 10 dollars a person a day is about what I am spending on food in Texas We do eat very well (but do not eat out much) and I could probably cut a third out of that by taking out luxuries and cut further by growing my own veggies. This is about double what I spent 10 years ago.

        • Flea says:

          U could have shoplifted it for free

        • elbowwilham says:

          I just spent $40 on 1.5lbs of ribeye and a bottle of red wine. Didn’t even fill half the bag.

        • Venkarel says:

          Only in a very specific parts of Austin and even then it is Texas.

    • gametv says:

      As the swollen bank balances drop and the credit card balances return to their pre-pandemic levels, we will see that the economy is not on strong footing.

      This is stagflation, the worst economic misery of all. A full scale melt-down in home prices is on the way.

  9. THEWILLMAN says:

    “the mix has changed toward food and consumables, and away from other stuff where profit margins are higher.”

    Unfortunately there is no law of the universe that says food has to be low margin. Farming/food production has decreased competition, more consolidation and now massive increases in fertilizer and gas prices to wipe out whatever independent folks are left. Never underestimate how evil these people can be.

    • Josh says:

      I agree with you and with the water shortage in California, crops that use a lot of water (e.g. almonds) may soon no longer be planted or become very expensive. But farming is actually an area that I think tech is going to have a large impact in (I was going to say “disrupt” but let’s never use that word again). Historical tech has been used to make farms more efficient but the future will be in vertical farming that can be done with less resources (water, fertilizer, etc.) and closer to where the people are to lower transportation costs. Hopefully there will be enough funding in this space that competitors will emerge to keep costs down.

      • otishertz says:

        Vertical farming only works on a small scale with things like lettuce and microgreens. I’ve seen it only a few times with cannabis. Going vertical = growing on a shelf and that requires lights, HVAC and other large energy inputs – – when the sun is right there every day shining down on fields all across the USA.

      • Flea says:

        As b gates buying up farmland ,do you think he will share food with peasants. Elites never share when shit hits the fan

  10. AD says:

    Walmart down to $119 in after hours, and down 26% from its 52 week high.

    I have never seen Walmart stock be this dismal.

    At least Walmart stock is down to where it was when the stock market crashed last May.

    I’m still long and selling weekly covered calls on Walmart.

    • Anthony A. says:

      Costco is in such a panic the store near me has already put out the Christmas stock to start selling.

    • Augustus Frost says:

      The US stock market didn’t crash in May, not even close.

      • AD says:

        It crashed about 23% a couple of months ago.

        A drop of at least 20% is a crash, but yes the latest crash was not like in 2000-2001 and 2007-2009.

        The stock market also crashed about 34% in April 2020.

        The current bear market may be just a continuation of the April 2020 crash.

        Its just that there is even more volatility because I suspect a larger percentage of the population is trading via the internet (i.e, Webull, Robinhood, Schwab, etc.) then back in 2000. And there are a lot more day traders as well.

    • Flea says:

      Better look at P/E ratio extreme

  11. historicus says:

    All of this just might make the Fed raise only .50……
    I can hear Powell now speaking of a slowing economy, commodity price decline, unemployment up, corporate earnings down……
    and Liz Warren screaming at him….

    • Wolf Richter says:

      I hope the Fed doesn’t see your comment. It would tell them that their message isn’t getting through, and that they will have to be extra-hawkish to force their message through to people. That’s how the transmission channel works. Volcker finally had to do that.

      The Fed’s job would be a lot easier if the 10-year yield were already at 5%. But markets are blowing off the Fed, and the Fed will keep raising until markets stop blowing it off.

      • gametv says:

        There is a simple solution to drive the 10 year yield up – start selling off any long dated bonds on the Fed balance sheet really fast. Just dump the stuff to the private markets.

        The Fed has limited their sales of bonds to allowing them to roll off as they mature. Better idea is to just outright sell them.

        That might be the shock the market finally needs to “get real”.

      • SoCalBeachDude says:

        Maybe the markets will notice slightly if the Federal Reserve FOMC sets the advisory overnight interbank lending Federal Funds Rate to 1000% or somewhat higher.

      • Rainer says:

        Volcker has few credit in bringing inflation at that time down. It was deregulation. This is the main problem today. Regulation hinders competition and innovation.

        • Wolf Richter says:

          I would say due to LACK of antitrust enforcement. One of the contributors to inflation is the concentration of corporate power because antitrust enforcement has been gutted by the Supreme Court and because captured antitrust regulators have been willfully asleep. The corporate giants have not been regulated in terms of antitrust, and for many years, they’ve been buying their competitors and potential competitors. Anytime a small company has something that threatens Big Tech, they just buy it and often just shut it down (the “kill zone”). So now we have a few huge companies with oligopolistic behavior. This is the case in may sectors throughout the economy.

  12. james wordsworth says:

    Consumers shifted from goods to services.
    With food now way up in cost, how long until services get hit again?
    The cost of a road trip (gas/hotels/restaurants) has gone extreme.
    Each dollar can only be spent once, and getting more dollars from debt has gotten more expensive. Recession is all but certain – because wages up 10% a year ain’t gonna happen.

    Chips are still nuts. We are trying to source a previously $5 chip – now $48. Another was $35, now $1.300!

  13. ben says:

    Great information on the inventory/ sales ratio.
    Grocery stores closer to normal for inventory as well. Not sure how to adjust the ratio if one were to remove autos from the data. Would the ratio look normal for all other retailers except autos? The removal of liquidity by the feds is being felt but inflation may be the larger force to deal with.

    • Wolf Richter says:

      Yes, it would look pretty close to normal, still a little low.

      I’ll post a detailed update on the inventory-to-sales ratios by segment in a few weeks when we get the June data.

  14. David Hall says:

    90% of Americans live within 10 miles of a Walmart.

    75% of Americans live within 5 miles of a Dollar General store.

    • Brant Lee says:

      Even the Fed couldn’t have planned it any better, but they’ve sure helped out. The only thing that hasn’t happened yet is to receive our pay in Walmart and Amazon script to only be spent in their company stores. I sure hope things get back to NORMAL with Fed 0.25% interest to help out these corporations hitting hard times.

      Better yet, perhaps soon we can grub out a living sharecropping for MSFT BG on all the farmland he’s bought up. Or move and work for Larry Ellison on the Hawaii island he bought. So many choices.

  15. unamused says:

    “And if you try to fly on vacation, expect to deal with mayhem because everyone is flying everywhere, because services are where people are now spending their money, not laptops.”

    Airline problems are self-inflicted. And in turn inflicted on passengers.

    Air traffic has not returned to pre-pandemic levels but airlines can’t keep up. By 2020 air traffic was down 70% so the airlines dumped at least 21% of their professional staff, and they’re having a hard time getting them back, and not only because they got tons of abuse and violence from antivaxxers.

    But airline problems started before that.

    Starting in 2014, each of the Big 4 airlines began a policy of massive stock buybacks, totaling $42.4 billion over the following 6 years. These buybacks, together with increased debt (+78%), were the engine of an intentional strategy of heightened financial risk taking. Delta, for example, spent 63% of their free cash-flow on stock buybacks.

    Meanwhile, the CEOs of the Big 4 airlines received $430 million in stock-based compensation over this period, separate from their cash compensation and deferred benefits.

    Then The Plague hit. The airlines got bailed out with billions to keep staffing up but didn’t because they had to deal with the balance sheets they had ruined.

    The primary shareholders of the Big 4 airlines today, together owning about 25% of each company, are two professional investors – Warren Buffett’s Berkshire Hathaway and Primecap Management. The bailouts rewarded these self-dealing management teams and the hedge funds. They didn’t help much with returning passengers.

    Financialization, as usual, ruins everything. There are many examples.

    • Wolf Richter says:

      Unamused,

      “Air traffic has not returned to pre-pandemic levels.”

      Not so fast.

      Travel between China, Japan, and some other Asian countries is below normal due to travel restrictions by those countries, and this was a huge travel volume.

      But domestic travel is ABOVE pre-pandemic, and leisure travel is WAY above — and that’s what you’re seeing in the summer, and that’s what is causing the problems now — while business travel (which is never high in the summer) is still below and may never get back to the old normal.

      Airlines got rid of lots of people during the pandemic and used their stimulus money to pay for the voluntary (!) buyouts and early retirements, and now they have a huge labor shortage, including a pilot shortage and a ground-crew shortage, and they’re in no way ready to deal with the boom in leisure (!) travel.

      • unamused says:

        And if the airlines hadn’t blown fifty billion on stock buybacks, executive booty, and hedge fund grifters they wouldn’t have needed fifty billion in corporate welfare.

        And they need more. And more. And more.

        Stock buybacks should be banned. So should piracy.

  16. Tom S. says:

    No sympathy at all for Walmart struggling with inflation. They pretty much killed US manufacturing and imported deflation for the past 20+ years. Can’t have the cake and eat it too. Strong dollar doesn’t help much, though, still makes sense to import.

    • SoCalBeachDude says:

      Walmart is benefiting wonderfully from the US Dollar’s great strength, but their problem is that they only sell very low-end junk which few people want especially as they start looking for VALUE in the stuff they buy. Walmart certainly did not ‘kill US manufacturing’ at all and the US remains the second largest manufacturing country in the world focusing on high-value-added as opposed to low-end junk products with no margins. The biggest issue that Walmart has is its low-end customers.

      • Brant Lee says:

        If you can find anything USA-made in a Walmart besides food good luck. They haven’t found a way to make people choke on Chinese food or believe me they would.

        All the corporate retailers have ‘killed US manufacturing’. The Slave trade is alive and well in Asia.

      • SomethingStinks says:

        Pass the pipe bro!!

  17. The Real Tony says:

    In Markham, Ontario Canada Walmart stopped selling 5 cent bags to put your groceries or merchandise into about 6 weeks ago. Now bags start at $1.50 instead of 5 cents.

    • El Katz says:

      Are the $1.50 bags disposable or reusable? This might be a reaction to a governmental “green” initiative to reduce the number of grocery bags in landfills.

      • Anthony A. says:

        From the same people that asked consumers and retailers to use plastic bags instead of brown paper bags to put their groceries in (save the trees initiative).

      • Venkarel says:

        Reusable bags can actually be a net negative to carbon reduction. The cost increase (in carbon emissions) to make a reusable bag is significantly higher than the very thin plastic bags. They have to be reused a minimum number of times to make up the difference and are often discard before that point. Canvas sacks are the worst offenders, they have to be reused simething like 150 times to make up for the difference in cost.

        • Clete says:

          And if you have a big dog, you use the disposable grocery bags to keep the neighborhood nice. Hundred-pound Boxers don’t have any use for those tiny bags on a roll.

    • Pete in Toronto says:

      It’s the same thing for the Walmart in my dad’s small Ontario town. It think the change is Canada-wide for Walmart.

      The bags are reusable, but that kind of markup is Pharma-Bro level!

  18. Harry Houndstooth says:

    What I find particularly astounding is Wolf Richter’s exhaustive, comprehensive coverage of ALL aspects of the financial universe. He digs in and reveals the larger trends in what is happening, as this article is an excellent example. This is why I feel very comfortable in obtaining all of my financial information from this site, from which I and my family have profited. His tolerance for dissent and conflicting opinions is matched by his intolerance for misinformation and untruths.

    Pure wisdom served up fresh daily.

    • VintageVNvet says:

      +++ 100% HH
      thanks for condensation of review of Wolf’s Wonder!!!

    • nefff says:

      Wolf’s qualities you reference are reminiscent of a late and great , very missed radio talk show host, you can’t fake that kind of knowledge and its so obvious it slaps you right in the face. Schools in, I learn more every time I read here.

  19. SocalJimObjects says:

    Shopify laying off 10%.

  20. Michael Engel says:

    1) Inventory/ sale Retail hit an all time low in Sept 2021.
    2) WMT weekly : DM flip, May 2 // DM #9, June 27.
    3) There is no close < May 16 low @117.27.
    4) There is no low < 117.27, a trigger.
    5) May 16 low @117.27 is above June 15 low, the last trigger.
    6) WMT Earning & Revenue : Aug 16.
    7) WMT news hit JP like a brick. WMT might signal promos and layoffs.

  21. Clete says:

    RE: Outdoor furniture and landscaping supplies — Is there any data about the cost of just storing that stuff for a year? It’s not like there won’t be another summer next year.

  22. Spencer Bradley Hall says:

    It’s a crime perpetrated by Jerome Powell.

  23. Halibut says:

    I believe WMT has other problems.

    For many, many years now, my wife has refused to go to WMT because she quite simply can’t stand the place.

    However, I have continued to shop there because I like the little smiley faces rolling back prices. Good times or bad, I try to save money because it just makes good sense. Waste not, want not.

    I have managed to tolerate the “people of Walmart” (and other nit-picks) by limiting my trips. I go infrequently to stock up on certain cheaper items there.

    Lately, that has changed. Now, the checkout clerks have completely vanished and I must choose one of two long lines for self checkout. The last (and final) trip I made it took so long to check out that I just snapped.

    I abandoned the cart and walked out. And, of course, that was a very long walk because I park very far away from the door where I can hopefully avoid dings from goofballs in their junkers.

    I’ll never get that time back, but at least it won’t happen again.

    Some of you might point out that I can order some things online, get free delivery, and avoid all that hassle. Well, sort of. Sometimes, delivery comes by USPS and that usually works OK. Other times, my items are in stock locally and they are sent directly by a “runner”. This typically involves someone that looks to have perhaps recently killed their mother, driving a “buy here pay here” monstrosity dragging their muffler on my driveway and tossing *part* of my order on the porch while flicking a greasy cigarette butt in my landscaping.

    Needless to say, I’m firmly in wifie’s camp now. I’m done. Screw WMT.

    • Flea says:

      Went to local wal mart yesterday,parking lot trash cans full and trash everywhere.Went back in and informed customer service,hopefully cleaned it up = gross

    • Clete says:

      We still use the pickup service in the next town over. It’s much much easier than going inside, and the thing I like the most is that I can place the order now (let’s say) for tomorrow afternoon pickup, and even after placing the order I have a few hours to add to the things I later remember.

    • SomethingStinks says:

      Be smart, go about 30 minutes before closing. The type of clientele you are trying to avoid is probably in a junk food induced coma in front of the TV by then. No lines either and you might get a smile from the employees.

  24. ooe says:

    This means the inflation fears were overblown. The inflation was transitory and due to mismanagement by our captians of industry,
    They should either co back to school to review the missing lectures or ask back their money for Harvard Business School.

    • Wolf Richter says:

      No, you didn’t get what Walmart said. It said the opposite. It said inflation is huge, and food inflation is 12%, and it’s raising prices, which is why its sales are up 6%, despite the struggling customers, and its costs are up even more, and so earnings decline. You should re-read it to get the sense of it.

  25. Harvey Mushman says:

    At my place of employment today:
    Just had a communications meeting. They sent out an email that said “Sales up 13%, segment income up 18%, adjusted Earnings Per Share up 21%”.

    They didn’t mention that our stock price is down 32% year to date.
    :-O

    • Wolf Richter says:

      Did they say what non-adjusted earnings was?

      • Harvey Mushman says:

        I logged in about 20 minutes late. So its possible it was mentioned before I logged in. I will have to listen to a transcript of the town hall meeting to see if it was mentioned

      • Harvey Mushman says:

        Second quarter GAAP EPS = $0.92
        Second quarter Adjusted EPS = $1.02

  26. Dale says:

    I got rid of my Walmart shares about 15 months ago at $116 US but bought in at $85 US. This is during 3 years period. I made over 12% with dividends so did pretty well. Bought a property in Florida with some of this money and all the rest with cash this property is up over 30% so far. I stayed out of debt and good thing mortgage rates are up oat 6% or so. I had mine at 2.75%.

  27. Valerie from Australia says:

    I find Walmart a very sad place. The last time I was in the U.S., I went to Sam’s and Costco and the difference was heartbreaking. The workers at Walmart looked tired and beaten – and yet they were very helpful. Now I read that they have been replaced by automated check outs. I’d like to think that the employees have gone on to find better jobs with the worker shortages. Personally, I hate Walmart. It is not just that the products are of a cheap quality, it is that they are made by an exploited workforce in countries with no environmental regulations. I’d rather pay twice as much somewhere else.

    • SomethingStinks says:

      I agree, now that they stopped selling ammo there is no need to go there anymore… the only more depressing store is the dollar store, I needed some junk one time and went in, had to go home and take a shower.

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