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News In Brief Business and Economy

Cost of living: As prices climb, Walmart issues a profit warning

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Cost of living: As prices climb, Walmart issues a profit warning
26 Jul 2022
min read

News Synopsis

US retailer Walmart has raised concerns about its earnings in the same way in May, when the rising costs of fuel and food impact the customer's spending.

The company has said it expects its profits to drop by as high as 13% in the next year. One analyst said that Walmart's unexpected announcement "signals an alarm bell for the retail industry".

Walmart has previously stated that it anticipated its profits for the year to drop by one percent this year. "The rising inflation and food prices have a direct impact on how customers spend their money," the Chief Executive Doug McMillon said in a statement issued. McMillon added that the company was planning to reduce the price of its clothing since it was "anticipating the pressure to increase on its general merchandise in the latter quarter" of the year.

With fuel and food price rise, consumers have to spend more money on the essentials, and are cutting the other expenses, Neil Saunders, managing director of retail for GlobalData, a data analytics firm GlobalData said.

Mr. Saunders noted that Walmart's announcement suggests that other retailers are being squeezed too. "Walmart has purchasing power similar to the rest of us. This helps to mitigate some inflation however, as the news today illustrates, even the largest stores retailers aren't unaffected by rising costs," he said.

On Monday, also Amazon, the largest online retailer Amazon increased the cost of its Prime service to UK customers for the first time since the beginning of 2014 due to "increased costs of operating and inflation". Prime provides the ability to deliver products in an unlimited manner as well as streaming entertainment services. The prices in US as well as the UK are increasing at their fastest pace in more than the past four decades, fueled by the rising cost of fuel and food prices. The Ukraine conflict as well as supply chain issues triggered by the pandemic are driving higher costs for everyday expenses for both households as well as businesses.

In its earnings report during May Walmart stated that it owned more than $60 billion (PS49.7bn) worth of stocks. It also promised "aggressive" price reductions on certain items.

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