Walmart has predicted a drop in profits as inflation leads customers to spend more on basics like food and less on items clothes and electronics.

This trend in purchasing has resulted in an increase in the number of items on store shelves and warehouses, pushing big-box retailers to aggressively price down items customers don’t want.

Following the announcement, the company’s stock plummeted in after-hours trade, joining major retailers Target and Amazon.

READ MORE: WHY WALMART HAS A PROBLEM WITH HAVING TOO MUCH STOCK

Walmart now expects adjusted earnings per share to fall by eight percent to nine percent in the second quarter and 11 percent to 13 percent for the whole year. 

Walmart had earlier predicted it would be flat to slightly higher in the second quarter and down by roughly one percent for the year.

Inflation has accelerated to its highest rate in four decades.

As prices at gas stations, grocery stores, and restaurants leap, some consumers are deciding where to spend and where to save.

Walmart, the largest grocer in the US and a leading indicator of the overall economy, said more consumers are resorting to its low-cost stores.

Customers are, however, leaving out general merchandise that they can live without.

READ MORE: WALMART ADDS HUNDREDS OF PRODUCTS AFTER THE LARGEST OPEN CALL EVENT

Walmart now estimates same-store sales in the US to climb by approximately 6 percent in the second quarter, excluding gas, as people purchase more food at its stores.

This is greater than the company’s earlier estimate of a four percent to five percent growth.

CEO Doug McMillon said: “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 US is requiring more markdown dollars.”

He added the firm is witnessing great back-to-school sales in the country, but he expects customers to cut down on general merchandise purchases in the second part of the year.

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McMillon believes that by emphasizing good value, Walmart may win market share and more consumers’ wallets throughout the inflationary period.He has often stated that the discounter will keep prices down in the next quarters.

Source: CNBC

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