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Walmart has a big quarter, even as it's stung like Target by organized retail crime

Walmart (WMT) managed to have a big first quarter, even as it's experiencing profit headwinds from rising organized retail crime — just like rival Target (TGT).

"To be clear, this is a problem for all retailers. Our main focus is protecting our associates and customers, but also protecting our merchandise. This is not an issue that one retailer — or retailers at large — can solve themselves. We need engagement from the local communities to help solve this," Walmart CFO John David Rainey said on Yahoo! Finance Live (video above).

He was speaking after Walmart reported first-quarter same-store sales growth Thursday that beat expectations. It also raised its full-year earnings-per-share forecast.

Rainey didn't share the financial impact the store is taking from inventory shrinkage, which is mostly from the theft of merchandise.

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But the fact it's happening may be attributed in part to increased economic stress among consumers, Rainey explained.

Target did put a number around the problem, much to the shock of its investor base.

The discounter estimated in its earnings release Wednesday that inventory shrinkage would clip profits by a whopping $500 million this year. Factoring in an about $700 million profit hit from the same cause in 2022, Target is on pace to see $1.2 billion go up in smoke, due primarily to organized retail crime.

Target Chairman and CEO Brian Cornell said the problem is getting worse, is nationwide, and across various merchandise departments.

"The unfortunate fact is violent incidents are increasing at our stores and across the entire retail industry. And when products are stolen, simply put, they are no longer available for guests who depend on them," Cornell said on a call with reporters.

"Left unchecked, organized retail crime degrades the communities we call home. As we work to address this problem, the safety of our guests and our team members will always be our primary concern. Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results," he said.

The problem of organized retail crime has only grown worse in recent years, as thieves look to secure goods and sell them cheaper to consumers in an age of elevated inflation.

Goods stolen from stores, which contributes to inventory shrinkage, led to $94.5 billion in losses in 2021, up from $90.8 billion in 2020, according to a late-2022 study by the National Retail Federation (NRF).

About 32.8% of companies surveyed called out organized retail crime as becoming "much more" of a concern in the last five years.

In a report released last month, an NRF analysis of 132 crime groups that conducted booster operations between 2014 and 2022 found that 16% used at least one violent tactic in stores. Those tactics include smash and grab, use of firearms or other weapons, battery, flash mob tactics, or threats of violence against store employees.

The contentious situation has caused big retailers to vacate certain high-crime cities such as San Francisco in 2023.

Nordstrom (JWN) recently followed Whole Foods in exiting a key location in San Francisco, citing concerns over worker safety.

Independent news site The San Francisco Standard has tracked 20 closures of household-name stores in the city since 2010, including Office Depot.

Target execs declined to say it would close stores to mitigate the profit impact of crime.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com

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