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Walmart's earnings whiff 'humanized' the toll of inflation, analyst says

Walmart's second earnings warning of 2022 says a great deal about the financial stresses U.S. consumers are increasingly seeing amid sky-high inflation, a bear market in stocks, and lofty gas prices.

The world's largest retailer slashed its second-quarter and full-year profit outlooks late Monday owing to rampant inflation and a consumer retrenchment for discretionary items such as apparel. Walmart now sees full-year earnings tanking 11% to 13% compared to a prior estimate for a 1% drop.

"This pre-release humanized what's happening inside the household in terms of decision-making," Jefferies analyst Stephanie Wissink said on Yahoo Finance Live (video above). "When we see consumers compromising wants to fund their needs because of inflation, that's a real human response."

Walmart shares plunged nearly 8% as of 12:40 p.m. during Tuesday's trading session. The ticker page was the most trafficked on Yahoo Finance, underscoring concerns about what the retailer's commentary means for the economy and markets in the near term.

Walmart isn't alone in experiencing a consumer going into financial preservation mode, and its earnings warning also placed pressure on competitors like Target and vendors in the mold of HanesBrands.

In a pre-announcement of its own, grill-maker Weber said it badly missed second-quarter earnings expectations this week. The quarter was so bad that Weber fired its CEO just like what happened at Gap several weeks ago.

“We are taking decisive action to better position Weber to navigate historic macroeconomic challenges, including inflationary and supply chain pressures that are impacting consumer confidence, spending patterns, and margins,” Weber's non-executive chair Kelly Rainko said in a statement.

Bath & Body Works also warned last week it would see earnings come in below consensus estimates as consumers reined in their spending.

HOUSTON, TEXAS - JULY 08: A customer shops for nutrition products in a Walmart Supercenter on July 08, 2022 in Houston, Texas. Consumer goods continue seeing shortages as the country grapples with ongoing supply chain issues stemming from the pandemic.  (Photo by Brandon Bell/Getty Images)
A customer shops for nutrition products in a Walmart Supercenter on July 08, 2022, in Houston, Texas. (Photo by Brandon Bell/Getty Images) (Brandon Bell via Getty Images)

Walmart's primary rival Target kicked off concerns about the retail sector's health in June with a shocking decision to liquidate massive amounts of slow-moving inventory and take a more cautious view on near-term profits.

Other retailers such as RH, Bed Bath & Beyond, and Kohl's have issued more cautious outlooks as consumers shift spending away from discretionary categories.

"There is this pivot happening from discretionary and general merchandise into necessities," Wissink said. "The household is having to make discriminate decisions every single week about funding that inflation."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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