Shopping trolley is seen in front of Walmart logo in this illustration, July 24, 2022.
Shopping trolley is seen in front of Walmart logo in this illustration, July 24, 2022. Reuters / DADO RUVIC

Top U.S. retailer Walmart Inc on Monday said its 2022 profits would drop much further than previously forecast as surging prices for food and fuel prompted customers to cut back on discretionary purchases, and its shares slid 10% in trading after the bell.

Shares of rivals including Target and also tanked after Walmart's warning, which signaled a "proverbial train wreck" for retailers, Burt Flickinger, managing director of Strategic Resource Group said.

Walmart, bellwether for the retail sector, said full-year profits would now decline 11% to 13%, much steeper than the 1% fall it previously forecast. It pledged to cut prices of clothing and general merchandise more aggressively than it did in May to reduce a spring backlog.

Excluding divestitures, full-year earnings per share are expected to drop 10% to 12%, the company said.

Neil Saunders, managing director at GlobalData called the warning a "cause for concern" that highlights the pressure that all retailers are currently under.

With prices for gasoline and food spiking, consumers are cutting back on purchases of discretionary items, saddling retailers with mountains of inventory including apparel, home goods, appliances and kitchen ware.

Supply chain snafus and miscalculations around demand have added to problems. In May, Walmart said it was sitting on over $60 billion of inventory at the end of the first quarter. It promised "aggressive" price cuts on items such as apparel.

On Monday, the company said it needed more price cuts to pare inventories.

"The increasing levels of food and fuel inflation are affecting how customers spend ... we're now anticipating more pressure on general merchandise in the back half," Doug McMillon, Walmart's chief executive officer, said.

Last month, Walmart's smaller rival Target cut its profit forecast further, and said it would resort to aggressive actions including cutting prices and canceling orders to cut back $15 billion in inventories.

Walmart said it estimates adjusted earnings per share for the second quarter to now decline around 8% to 9%, compared with the flat to slightly up it previously anticipated.

Walmart raised its forecast for U.S. comparable sales, excluding fuel, to 6%, however, mainly to account for the rise in food prices. It previously expected those sales to be up 4% to 5%.