Walmart, the big-box retailer, missed quarterly sales estimates by a hairline on Thursday. This was due to the impact of higher tariffs, which even the world’s largest retailer couldn’t escape. Despite this setback, the Arkansas-based company exceeded quarterly earnings expectations and upheld its full-year forecast. This forecast predicts a sales growth of 3% to 4% and adjusted earnings ranging from $2.50 to $2.60 per share for the fiscal year. Wall Street had its doubts about this cautious profit outlook back in February, and it seems those doubts were not entirely appeased this time around either as shares closed slightly lower.
First E-Commerce Profitable Quarter
Walmart also hit a significant milestone by achieving its first profitable quarter for its e-commerce business in both the U.S. and globally. The company’s e-commerce business has been thriving thanks to the rise of higher-margin moneymakers like online advertising and Walmart’s third-party marketplace. Chief Financial Officer John David Rainey expressed concerns about tariffs, emphasizing that they are “still too high” despite the recent agreement to lower duties on imports from China to 30% for 90 days. Rainey highlighted the potential impact on consumers, stating that they may start seeing higher prices towards the end of the month, with even more significant increases expected in June.
Sales Outlook and Financial Results
Looking ahead, Walmart anticipates net sales to increase by 3.5% to 4.5% for the fiscal second quarter. However, the company refrained from providing guidance on earnings per share or operating income growth due to the unpredictable nature of U.S. tariff policy. In the first quarter of the fiscal year, Walmart’s net income dropped to $4.49 billion, or 56 cents per share, compared to $5.10 billion, or 63 cents per share, in the same period last year. Despite a 2.5% increase in revenue from the year-ago period, Walmart faced a 1% headwind from lapping leap day in the previous year. This quarter marked Walmart’s first revenue miss since February 2020.
Consumer Behavior and Sales Trends
Walmart serves as a barometer for the U.S. consumer’s health, given its extensive store network and diverse customer base. Rainey noted that consumer behavior has not significantly shifted from previous quarters, with customers remaining value-conscious. Sales in the quarter were described as “a little choppy,” with February results falling below expectations, March aligning closely with forecasts, and April showing a significant improvement. Rainey pointed out that May sales patterns resemble those of April, indicating stability in consumer spending habits. Despite an increase in purchases across Walmart’s brick-and-mortar stores and online platform, this quarter marked the fourth consecutive period of deceleration in average ticket and customer transactions.
Navigating Tariff Challenges
Trade uncertainties continue to pose challenges for Walmart and the broader retail industry, influencing inventory decisions and pricing strategies. Rainey highlighted that approximately one-third of Walmart’s U.S. sales come from international sources, with China, Mexico, Canada, Vietnam, and India being the primary markets for imports. CEO Doug McMillon emphasized the significant cost pressures stemming from tariffs on Chinese imports, particularly in categories like toys and electronics. Walmart is focused on maintaining competitive prices, but tariffs on countries such as Costa Rica, Peru, and Colombia have impacted the costs of certain products like bananas, avocados, coffee, and roses. Despite these challenges, Walmart remains committed to offering value to customers and plans to navigate the tariff landscape by keeping price differentials below competitors.
Looking Ahead
Walmart’s quarterly performance sets the stage for upcoming sales updates from major retailers like Target, Home Depot, and Lowe’s. These reports will provide insights into the strength of the U.S. consumer and the implications of higher tariffs on the retail sector. Unlike some competitors, Walmart’s diverse product offerings and value proposition have positioned it well to weather economic uncertainties and appeal to a broad consumer base. The company’s focus on innovation, including investments in e-commerce, advertising, and membership programs, has contributed to its sustained growth and profitability. As Walmart continues to adapt to evolving market conditions and tariff challenges, its strategic approach to pricing and customer engagement will be crucial in maintaining its competitive edge in the retail landscape.
