FirstFT: Walmart warns on profits

Walmart issued its second profit warning in 10 weeks after the market closed yesterday, saying inflation was weighing on price-sensitive consumers.

“The increasing levels of food and fuel inflation are affecting how customers spend,” said Walmart’s chief executive Doug McMillon in a statement.

He said Walmart was having to cut prices to move inventory, especially clothing.

Walmart’s warning sent its shares down almost 10 per cent to $118.97 in after-hours trading, cutting about $35bn from its stock market capitalisation. That prompted a sell-off in shares of rivals including Target, Costco and Home Depot, while those of Amazon fell more than 4 per cent.

In May, Walmart shares suffered their biggest one-day drop since 1987 when it cut guidance for the coming quarters for the first time. Its shares have fallen 8.7 per cent since the start of the year, compared with a 17 per cent decline for the S&P 500.

Investors have grown increasingly concerned that retailers will have to discount unsold products as rising prices and a shift in spending from goods to services hits sales.

Amazon said yesterday it would pass on rising prices in Europe to customers and increase the cost of its popular Prime membership scheme, several months after doing the same for US customers.

The company attributed the move to “increased inflation and operating costs”.

Walmart, which is due to report earnings for the April to June period in three weeks, said operating income would fall 13 to 14 per cent for the quarter as it discounted merchandise to clear excess inventory. For the full year, the company said operating income would fall between 11 and 13 per cent.

As with other US multinationals, Walmart is also suffering from the strength of the dollar which led to a “headwind” of $1bn in the second quarter and, based on current exchange rates, would add $1.8bn of extra costs in the second half of the year, it said.

Thanks for reading FirstFT Americas. Here’s the rest of today’s news — Gordon

Five more stories in the news

1. Ex-Goldman banker accused of passing inside tips to squash partner US authorities accused New York-based Brijesh Goel of passing sensitive market information to his squash partner, in one of a series of insider trading cases announced by federal prosecutors yesterday.

2. Taiwan fears fallout from planned Nancy Pelosi visit The pushback from the White House against House Speaker Nancy Pelosi’s planned visit to Taiwan has sparked anxiety in Taipei that the controversy will further compromise its security. People familiar with the situation in Taipei said the US administration’s public opposition to the trip threatened to embolden Beijing.

3. Russia cuts gas deliveries to Europe via Nord Stream 1 Moscow’s state-owned energy group Gazprom will slash gas flows through its largest pipeline to Germany to a fifth of capacity from tomorrow, threatening to leave the continent short of critical supplies ahead of winter.

4. Italy’s access to share of EU Covid fund in question European governments and investors are nervously examining what the collapse of Mario Draghi’s government will mean for Italy’s ability to hit ambitious reform milestones and unlock tranches of the EU’s €800bn Covid-19 recovery fund — of which Rome is the largest recipient.

5. Conservative leader TV debate stokes acrimony Rishi Sunak and Liz Truss have exchanged blows over the UK economy in a crucial televised Tory leadership debate that ended in a bloody stalemate but took the contest to new levels of acrimony. A snap poll of 1,000 voters found that Sunak only narrowly edged the contest by 39 to 38 per cent. While an Opinium survey showed that Tory voters thought Truss did better by 47 to 38 per cent as the two compete to succeed Boris Johnson as prime minister. The winner will be announced on September 5.

The day ahead

US interest rate meeting The Federal Reserve begins a two-day monetary policy meeting with markets expecting the central bank to increase the fed funds rate by 75 basis points for the second consecutive month to a range of 2.25 per cent to 2.5 per cent.

Stock market outlook The warning from Walmart and the Fed meeting are unsettling investors. Futures for Wall Street’s S&P 500 pointed 0.3 per cent lower following an indecisive session on Monday as corporate earnings season got into full swing.

Company earnings Microsoft and Google’s parent company Alphabet kick off earnings season for the big tech companies today. Beyond the tech sector, McDonald’s, Coca-Cola, Kimberly-Clark and grocery chain Albertsons will report before the opening bell. Industrial groups General Electric and General Motors also report.

Economic data Home prices in the Case-Shiller index’s 20-city composite are expected to have climbed 20.6 per cent year on year in May, according to a Refinitiv poll of economists. The Conference Board is expected to report consumer confidence fell to a reading of 97.1 in July from 98.7 in June, according to analysts polled by Refinitiv.

Donald Trump returns to DC The former US president is set to speak this evening at a two-day summit hosted by the America First Policy Institute in Washington. This will take place a day after former vice-president Mike Pence delivered his so-called freedom agenda in a speech at the Heritage Foundation. Both politicians are testing the waters for a presidential run in 2024.

Indo-Pacific military chiefs conference Attendees in Sydney today and tomorrow include US military chief Mark Milley and Admiral John Aquilino, head of US Indo-Pacific command, who are expected to discuss Taiwan and what lessons from the Ukraine conflict might apply to the island.

EU energy ministers meet An extraordinary meeting of the bloc’s energy ministers takes place in Brussels with the aim of creating a package of measures to secure fuel supplies. FT premium subscribers can read more in our Europe Express newsletter

What else we’re reading

Cost cuts loom on Wall Street Investment bankers should brace themselves — Wall Street banks are getting ready to tighten their belts. After a boom in dealmaking and Spac-linked IPOs, conditions have changed radically this year and now finance executives accept that radical cost-cutting will be inevitable, writes US corporate finance and deals editor James Fontanella-Khan.

Tech bros prosper in New York Meanwhile, New York City’s tech sector is thriving. But while Silicon Valley desires hardcore engineers, businesses in NYC have exploited the application of technology across sectors such as prop-tech, fintech and ad-tech and remain a small part of the city’s labour force, unlike San Francisco.

Is the dollar about to take a turn? The US dollar has risen more than 10 per cent against other major currencies since the start of the year. But if the economy weakens and inflation rises, the Federal Reserve is likely to pull the brakes and the greenback will reverse, writes Professor Barry Eichengreen.

Argentines turn to black market dollars as crisis worsens Confidence in the Argentine economy is evaporating as the government struggles with political infighting, an ever-increasing pile of domestic debt and inflation hurtling towards 90 per cent. The rapid deterioration in sentiment and the government’s increasing difficulty in funding itself are raising fears of a full-blown economic crisis.

HSBC’s past may not help its future Sharp minds are trying to divine the future of the bank by working out how its returns, regulation and capital base would change if it was broken up, as demanded by shareholder Ping An Insurance. But it is politics, not metrics, that decide how China acts, writes author Michael Sheridan — and history is not on HSBC’s side.

Obituary

Lord David Trimble, a key architect of the Good Friday Agreement that brought peace to Northern Ireland almost a quarter of a century ago, has died after a short illness. The joint winner of the 1998 Nobel Peace Prize was 77.