As consumers face 40-year high inflation and ongoing interest rate rises, both Walmart and Target have acknowledged how rising prices are affecting their operations.
Target CEO Brian Cornell stated the company was dealing with “unusually high costs” in the last quarter during an earnings call with analysts on Wednesday, May 18.
Walmart CEO Douglas McMillon stated in his company’s most recent quarterly report that food prices are witnessing a “double-digit increase.” He expressed concern that they would continue to climb.
Both corporations have been dealing with unusual circumstances that have put a strain on their supply systems, citing supply chain constraints and increased global energy demand, which has pushed average gas prices to $4.59 per gallon.
Cornell said on the earnings call Target was dealing with “much higher than expected freight and transportation costs” as a result, with the company facing $1 billion worth of shipping costs over the year, “hundreds of millions” above expectations.
He said: “We did not anticipate the rapid shifts we’ve seen over the last 60 days” referring both to fuel prices and changing consumer habits as COVID-19 restrictions were lifted, with travel-hungry customers buying more luggage and fewer TVs.
McMillon said Walmart was also dealing with rapidly rising fuel prices, which were $160 million higher than expected, and that both companies were dealing with materially high food costs caused by global shortages.
Labor also continues to be stretched across the US, with job openings at a record high and wage rises exceeding 5 percent.
McMillon said:” For Walmart, this was made worse by a miscalculation on its staffing requirements as the Omicron variant swept the US at the end of 2021”
McMillon said on the earnings call the company had “weeks of overstaffing” after bringing in workers to cover for those it expected to be on sick leave, but almost all returned ahead of schedule in February, increasing labor costs alongside the knock-on from last year’s wage rise.
McMillon said customers were already changing their spending habits, cutting back on premium brands.
He told analysts on the earnings call customers were “switching” from products in deli, lunch meat, dairy, and bacon to lower-cost items.
On the same call, Walmart’s chief financial officer, Brett Briggs, stated that the company was likely to raise food prices while offering discounts on general merchandise such as sporting goods and hardware, where margins were higher.
Source: Business Insider