Walmart shares just slid 10%: what happened?

Walmart Inc (NYSE: WMT) shares slid nearly 10% in extended trading on Monday after the big box retailer trimmed its profit guidance both for the current quarter and the full financial year.

Discretionary items are selling less

The multinational said inflationary pressures were seeing more spending on food and other necessities but at the expense of items like electronics and apparel.  

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It now forecasts a 6.0% increase in its U.S. same-store sales this quarter, versus 5.0% tops it had guided for earlier. But discretionary items tend to have a bigger profit margin and so that shift to staples will hit its profit in Q2.

The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars.

Walmart’s revised guidance for fiscal Q2

Walmart now forecasts up to a 13% hit to adjusted EPS this year, including an 8.0% to 9.0% decline it expects this quarter. Previously, the retail giant was looking at adjusted per-share earnings to remain roughly flat in Q2 and drop 1.0% for the full financial year.

The Bentonville-headquartered company is set to report its quarterly results in mid-August. Including after-hours, Walmart shares that have a consensus “overweight” rating are now down 25% from their year-to-date high in April.

The news comes only weeks after peer Target lowered its outlook. Other retail stocks, especially the ones that focus on apparel and home goods, like Macy’s, Kohl’s Gap, and Nordstrom are also in the red after the bell.