U.S. retail giant Walmart (NYSE:WMT) lowered its full-year profit forecast on Tuesday due to the expected impact of rising costs on its profit margins.

Earnings Were Below Expectations

Walmart’s total revenue rose 2.4% to $141.6 billion in the quarter ended April 30, thanks to sales of food, health and well-being products. The retailer beat the expectations of analysts who, according to Refinitiv data, were counting on $138.94 billion. 

U.S. comp sales increased by 3% and e-commerce growth was 1%.

Walmart saw net profit fall 25% to $2.05 billion in the first quarter of 2022, hit by higher spending on food, gas and wages. On a per-share basis and excluding special items, earnings came in at $1.30, less than the $1.48 expected. This is the first time in five quarters that the group has recorded a profit below expectations.

Walmart president and CEO commented: “Across our businesses, we had a strong topline quarter. We’re grateful to our associates for their hard work and creativity. Bottomline results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected. We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.”

The number one retailer also highlighted in a presentation a sharp increase in stocks and higher than expected costs for its supply chain. 

Walmart outperformed most of its competitors in terms of inventory thanks to its bargaining power with suppliers, but its costs soared with the acceleration of imports and exports.

Walmart has also spent more on its employees in the United States. Indeed, employees’ fast return to work after a COVID-19-related shutdown and higher payroll investments have driven operating expenses higher.

Expectations for Q2 and Full-Year 2023 Tempered

For its entire fiscal year, the group now expects its revenue to rise by 4% instead of the 3% previously forecasted. Walmart also forecasts a 1% decline in earnings per share, whereas it previously forecasted an increase of 4 to 5%

The company has also tempered its expectations for the second quarter of 2022 and now expects earnings per share to be stable or slightly up, against an increase of 1 to 5% previously forecasted.