Walmart warns it’s in for a tough year

By Nathaniel Meyersohn, CNN

Walmart had a strong holiday shopping season, but the year ahead will be more challenging for America’s largest retailer.

Walmart forecast slower sales and profit growth, disappointing investors and sending its stock down during morning trading Tuesday.

However, Walmart notched an 8.3% sales increase during its latest quarter at US stores open for at least one year, the company said Tuesday, with more customers buying its private label brands and more higher-income households shopping at its stores.

Growth during the holidays was led by grocery sales, the company said, as shoppers bought essentials instead of gifts. Government inflation data shows that grocery prices have increased 11.3% over the last year, and more shoppers are turning to discount chains like Walmart to save money. Sales were slower for traditional holiday products like toys, electronics and clothing, a sign that some consumers were cautious on discretionary spending.

Walmart recently announced that it will raise its minimum wage from $12 to $14 an hour as it tries to retain store workers in a tight labor market for lower-wage industries. (Home Depot on Tuesday also said it will spend $1 billion this year to raise wages and other compensation.)

Walmart’s raise will impact profit, squeezing margins at the same time as its core lower-income shoppers continue to be hit by inflation, which could dent its sales this year.

“The consumer is still very pressured,” Walmart CFO John Rainey told CNBC. “And if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.”

The retail sector as a whole faces a more difficult period. Holiday sales were sluggish for many retailers, and the industry is expected to have a weaker 2023.

Bankruptcies are piling up: Party City, Tuesday Morning, mattress manufacturer Serta Simmons and Independent Pet Partners, a pet store retailer, have filed for bankruptcy in recent weeks.

Bed Bath & Beyond, Rite Aid, Joann Fabric and other chains are also on bankruptcy watch, according to credit rating agencies. These companies have struggled for years and are most vulnerable to challenging economic conditions.

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