What happened
Just one day after Walmart (WMT 1.32%) reported disappointing first-quarter results that sent its share price plunging 11% yesterday, the retail stock was falling again today after rival Target reported financial results that were also below investors' expectations.
The retail stock was down by 6.2% as of 2:30 p.m. ET.
So what
Walmart investors were still reeling from yesterday's reported financial results, in which the company's adjusted earnings of $1.30 per share in the first quarter, down 23% from the year-ago quarter, fell below analysts' consensus estimate of $1.48.
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Walmart's CEO Doug McMillon pinned the poor bottom-line results on the "unusual environment" in the U.S. right now, noting that "U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected."
And while that was unpleasant for Walmart investors to hear yesterday, they got a second dose of inflation worries today when Target reported adjusted earnings of $2.19, which fell far short of analysts' average estimate of $3.07 for the quarter. Target's stock fell 27% on the news.
Comments made by Target's CEO Brian Cornell mirror Walmart's reaction to inflation, with Cornell saying, "Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time."
Now what
Investors are growing increasingly concerned that inflation -- which is at a nearly 40-year high -- will continue to put pressure on Walmart's bottom line in the coming quarters.
And while the Federal Reserve has already begun raising rates in an effort to tame inflation, aggressive rate hikes could end up tipping the U.S. into a recession.
That doesn't mean investors should panic, but Walmart shareholders should continue to keep an eye on how the company adjusts to rising costs in the coming quarters.
