The Unexpected Reason Walmart Saw A Hit In Profits During Q1
Walmart has experienced a rough few days when it comes to share price. Google Finance reports a drop in stock value of almost 19% over the last five days (as of market open on May 19), and news outlets across the board are reporting on a wave of dismal earnings calls that have come in from all corners of the retail world. Walmart is not alone in the pain that retailers are experiencing, but the primary factor in the significant retraction of stock value is due to a unique feature of the brand's approach to the business continuity over the last six months.
Business Insider reports that Walmart and Amazon alike have experienced an unexpected problem as the latest Omicron wave of the pandemic dies down. Both companies have seen a downturn in share price recently, but the Walmart cliff is unique to the physical retail realm (with Target seeing a similar downturn). In short, Walmart spent the bulk of the latest pandemic trauma hiring additional staff to account for shortages in the workforce, only to see a massive overabundance of workers after the spike in cases waned.
Walmart hired overflow staff to account for COVID-related shortages
One of the primary features of the Omicron wave in the world of retail was a major hit to staff schedules. Businesses all over the country ran into significant staff shortages that came as waves through the sales floor. Walmart was not immune to this phenomenon, of course. With huge staff volumes already and a workplace that sets employees directly into contact with a revolving door of customers, the brand suffered barrages of staff infections and hired a veritable army of additional staff members to account for the constant shortages that have plagued the retail space for the duration of the pandemic.
Business Insider reports that Walmart hired more new employees than would be needed over the long term in order to fulfill the needs of the present moment. But once the Omicron wave subsided, the brand had more associates than it needed for multiple weeks. The overstaffing issue will weigh heavily on the earnings targets for the brand for at least the next year. Business Insider also notes a decline in profits by 24.8% from last year and a slash to the profit guidance for the next year.
Stocks across industry are continuing to experience a pummeling amid pandemic fears and political stress
The social exit from this latest wave of COVID-19 infections comes amid unique political stress across the globe. In addition to increased hiring, the stock market remains hobbled by long-lasting supply chain issues that are not likely to subside in the short term, according to The New York Times. In addition to this unique staffing problem that exists in a still-recovering jobs market (via Reuters), Walmart has been stung by inflated oil prices, trucking shortages, and other supply chain problems — alongside every other retail chain operating in the present market.
While Business Insider reports that Walmart has essentially solved its overstaffing trouble, mostly through natural attrition of staff members rather than targeted layoffs, these additional constraints will remain in place for the foreseeable future. Stocks across all segments are continuing to experience a battering that has maintained a consistency for much of 2022.
Yahoo Finance reports that supply chain concerns in the minds of consumers have prompted a turn toward higher spending on essentials and a weakening consumer discretionary marketplace. This has squeezed the profit margins that retail outlets enjoy in the short term, leading to a further shrinking of profits in the present market.
Inflation fears are fueling a pullback from the consumer marketplace
Consumers are also spending less amid fears of a runaway inflation rate, as seen in harrowing earnings calls and reports from Walmart and other leading retailers over the last few days, according to Yahoo Finance. The Federal Reserve has been working in overdrive to tame inflation, but the problem is one that's not easy to switch off. Early in the pandemic, the federal government pumped stimulus cash into the system through the use of direct economic relief checks to consumers; now, federal rates are rising at a measured pace to even out the overheated rate of attrition that the market is experiencing at present. Yet, even as the Fed steps in to settle this present fiscal trauma, the legislative and executive branches, as reported by The Washington Post, have remained behind the curve on meaningful progress.
A number of factors play crucial roles in the circumstances that exist today across Walmart locations, but what's certain is that other industrial giants are grappling with the same issues. Business Insider reports that Amazon is feeling the same downturn in fiscal productivity too. Across the board, however, executive teams are looking at this as a short to a medium-term blip that will eventually subside, giving way to a return to business as usual over the longer economic timeline.