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Walmart still under pressure amid rampant inflation, specifically gas prices

Walmart U.S. CEO John Furner presented at the annual Jefferies Nantucket Consumer Conference this week, and it's clear that inflation is still weighing on the retail giant and its customers.

"The tone was consistent with recent [earnings] report — seeing rotation and spending changes, while signaling encouraging [market] share and new customer capture," Jefferies analyst Stephanie Wissink stated in a new client note on Thursday. "New to us — apparel is the most fuel-sensitive category at Walmart (first to be cut when gas prices spike). Pressure on general merchandise has persisted, especially as core inflation in food, fuel, rent, and utilities impacts household spending."

Furthermore, to combat the inflation that Walmart itself is experiencing in labor, transportation, and its vast supply chain, the company is among those retailers passing price increases to consumers.

"Management reiterated they are passing through real time pricing in high-velocity consumables categories, maintaining price gaps and low-price leadership," Wissink stated. "Inflation in non-consumables is still coming through the system."

A customer puts groceries back to his car after shopping at a Walmart store in Chicago, Illinois, on November 27, 2019. REUTERS/Kamil Krzaczynski
A customer puts groceries back to his car after shopping at a Walmart store in Chicago, Illinois, on November 27, 2019. REUTERS/Kamil Krzaczynski

The analyst maintained a buy rating on Walmart's stock with a $155 price target.

Furner's comments on consumer demand, which follow equally cautious comments this week by Target CEO Brian Cornell, come on the heels of a surprising earnings shortfall in May for the first quarter as supply chain inflation weighed on profits.

At the time, the company lifted its full-year sales growth outlook to 4% from 3%. But inflationary pressures and working through excess inventory, which appears to be taking longer than expected, have clipped Walmart's profit outlook. The company sees earnings per share falling 1% this year compared to a prior outlook for a mid-single digit percentage increase.

"We're seeing everything that's going on in the United States right now," former Walmart CFO Brett Biggs, who retired and handed the CFO reigns to former PayPal CFO John Rainey, told Yahoo Finance in an interview.

Walmart's stock continues to reflect investor concern around a potential recession at the hands of a consumer spending pullback. Shares of the Dow Jones Industrial Average component are down 16.5% so far this year, compared to a 15.5% drop in the overall index.

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

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