Walmart reports strong sales — but shares drop as profits get squeezed by tariffs

Walmart reported better than expected quarterly revenue as inflation-battered shoppers flocked to its stores — but the retail giant’s shares were poised to drop as costs from Trump’s tariffs cut into profits.

The world’s biggest retailer posted quarterly revenue of $177.4 billion — a hefty 4.8% jump that sailed past Wall Street’s $175.9 billion target.

But Walmart meanwhile missed quarterly profit expectations for the first time since May 2022.

Executives also warned they expect to hike prices on about 10% of items across its stores to offset higher import costs from President Trump’s tariff policies.

Markets have been anticipating Walmart management’s commentary on consumer demand trends and the company’s strategy for navigating potential tariff headwinds in the months ahead.

Behind the scenes, Walmart is scrambling to keep prices low as tariff costs mount. Chief Financial Officer John David Rainey told CNBC the company is speeding up imports from overseas and ramping up Rollbacks — limited-time discounts — in stores.

“This is managed on an item-by-item and category-by-category basis,” Rainey said.

“There are certainly areas where we have fully absorbed the impact of higher tariff costs. There are other areas where we’ve had to pass some of those costs along.”

But Rainey warned that “tariff-impacted costs are continuing to drift upwards,” signaling more price pressures ahead.

Adjusted earnings clocked in at just 68 cents per share, falling short of the 73 cents analysts had penciled in. The miss sent Walmart stock down 2.6% before markets opened on Thursday.

The earnings shortfall came even as the Arkansas-based giant reported a 4.6% year-over-year increase in same-store sales, which the company says was powered by strong grocery and health category performance.

Higher-income shoppers drove most of the gains as Americans hunt for bargains amid persistent inflation pressures.

“WMT remains one of the most compelling investments in retail as the Company continues to fire on all cylinders despite a volatile backdrop and tariff noise,” KeyBanc analyst Bradley Thomas wrote ahead of the results.

The retailer’s momentum stands in stark contrast to struggling big-box rivals. Target saw comparable sales plummet 1.9% while Home Depot managed only a modest 1% increase.

Walmart capitalized on consumer pain by building market share across all US product categories.

The company said it’s benefiting as shoppers seek shelter from inflation that’s hammered household budgets for years.

Global e-commerce sales exploded 25% while US online sales rose 26%, led by surging pickup, delivery and marketplace growth.

Despite the earnings miss, Walmart brass boosted their full-year sales forecast. The company now expects net sales to climb 3.75% to 4.75%, up from previous guidance of 3% to 4%.

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Management raised its full-year outlook, projecting adjusted earnings of $2.35 to $2.43 a share, up from its prior range of $2.23 to $2.37.

For the third quarter, Walmart expects sales to rise 3.25% to 4.25% and adjusted earnings of 51 to 52 cents a share.

Management also raised its full-year outlook, projecting net sales growth of 3.75% to 4.75% and adjusted earnings of $2.35 to $2.43 a share, up from its prior range of $2.23 to $2.37.

Inflation remains a key storyline. Like-for-like price increases hit 1.1% year-over-year inside Walmart’s massive US operation — double the previous quarter’s rate but still well below broader US inflation.

Even as Walmart slashed prices on select food items, grocery inflation climbed about 1.5%. Meanwhile, general merchandise like clothing and electronics saw prices deflate.

Net income plunged 43% to $4.5 billion, even as operating income climbed 8.5% to $7.9 billion on stronger margins and e-commerce growth.

The mixed results highlight Walmart’s balancing act. The retailer must thread the needle between maintaining its everyday low price strategy and protecting margins as costs mount.

Investors had sky-high expectations heading into the report. Walmart shares have rocketed 36% over the past year, nearly triple the S&P 500’s 14% gain.

That outperformance has pushed the stock to 36 times forward earnings — a lofty valuation that leaves little room for error.

“We believe the stock remains attractive as the company continues to deliver consistent execution with a long-term market share and margin story,” Quo Vadis Capital’s John Zolidis wrote.

But Jefferies analyst Corey Tarlowe struck a more cautious note, suggesting management could take a “slightly cautious” tone about the second half given economic uncertainties.

Markets will be watching closely for management’s commentary on consumer demand trends and the company’s strategy for navigating potential tariff headwinds in the months ahead.