What happened

Shares of Walmart (WMT 0.26%) sank 11.4% on Tuesday after the retail giant's profits fell short of investors' expectations. 

So what

Walmart's revenue rose 2.4% year over year to $141.6 billion in its fiscal 2023 first quarter, which ended on April 30. The gains were driven by a 3% rise in the retailer's U.S. comparable-store sales (excluding fuel) and a 10.2% jump in its Sam's Club comps.

Walmart's international net sales, however, decreased by 13%. The decline was due largely to the company's sale of its operations in the U.K. and Japan in the first quarter of fiscal 2022.

A person is shopping in a grocery store.

Image source: Getty Images.

More concerning was the decline in Walmart's profitability. Its gross margin decreased by 87 basis points (1 basis point is equal to 0.01%), due in part to higher supply chain costs. Higher labor costs further dented the company's operating margin. Walmart's operating income, in turn, fell 23% to $5.3 billion.

All told, Walmart's adjusted earnings per share declined by 23% to $1.30. That was below Wall Street's estimates, which had called for adjusted per-share profits of $1.48.

"Bottom line results were unexpected and reflect the unusual environment," CEO Doug McMillon said in a press release. "U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected."

Now what

These inflationary cost pressures prompted Walmart to cut its full-year profit forecast. Management now expects the company's operating income and earnings per share to decline by roughly 1% in fiscal 2023. Walmart had previously projected that its operating profits would grow by approximately 3%.