The holiday shopping season is key for retailers since it can often make or break a company's year. And 2022 could be an especially challenging one for many businesses, because inflation and supply chain issues have put added pressure on retail companies.
Big-box chain Walmart (WMT 1.80%) has largely weathered the storm thus far in 2022. Its shares have fallen 9% year to date, which is more modest than the S&P 500's 23% drop. However, that could change. The retail company may have dropped a big hint, suggesting that it may not think demand will be all that strong this holiday season.
NASDAQ: WMT
Key Data Points
Walmart is hiring far fewer seasonal workers
In September, Walmart announced it was hiring 40,000 seasonal workers to help with the upcoming holiday season. That's in stark contrast to the more than 150,000 workers it added a year ago. The company did say it will give its part-time workers the ability to pick up more shifts, but this is still a sizable drop in workers.
This can be problematic for the retailer as Walmart's inventory levels are still around record levels. Even with the discounts that will likely come as a result of trying to move all that inventory, Walmart still doesn't see a need for a larger pool of temporary seasonal workers, which should serve as a big red flag to investors.
WMT Inventories (Quarterly) data by YCharts
Other companies are also offering warning signs
Investors paying attention to other companies will notice there are also similar red flags out there. Logistics company FedEx recently reported its latest earnings numbers, and the company's CEO, Raj Subramaniam, had a grim outlook on the near future. He stated that a global recession is likely on the way, telling CNBC that "we're seeing that volume decline in every segment around the world."
Another possible sign of trouble comes from online retailer and Walmart rival Amazon, which will be having a second Prime Day event for October. This marks the first time it will have a second such event in a calendar year. There were reports in July, after its regular Prime Day, that Amazon was looking to add another one, despite stating that the 2022 Prime Day was its biggest ever. With Black Friday sales on deck in November, adding yet another heavily promoted sales event suggests that Amazon knows it too might need all the help it can get during the last quarter of the year.
Why Walmart's stock could be in trouble
The outlook for consumer demand isn't looking promising based on the information coming out from Walmart, Amazon, and FedEx. And this could all be particularly bad news for Walmart's stock. A lack of strong demand could force it to become more aggressive in discounting its merchandise, especially older items that are still taking up space. That would pinch its already small margins even further.
WMT Gross Profit Margin data by YCharts
Another thing that makes Walmart a risky stock to be holding today is that it trades at more than 26 times its trailing profits. Target, a retailer facing similar challenges, is trading at only 17 times earnings. With a tougher outlook ahead and potentially softer growth and profit numbers in upcoming quarters, Walmart's stock could be due for a sell-off. For those reasons, I'd steer clear of it right now.
