Walmart posts first profit miss in over three years as tariff-related costs rise weekly
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The news: Walmart shares fell after adjusted earnings missed Wall Street expectations for the first time in more than three years, overshadowing stronger-than-expected second-quarter sales.
The numbers: Revenue in the second quarter rose to USD177.4 billion ($276 billion), above the USD176.16 billion expected, driven by a 25% jump in global e-commerce and a 4.6% rise in US comparable sales.
Profit, however, was weighed down by higher insurance claims, legal charges and restructuring costs. And executives said tariff-related costs have increased each week and are expected to keep rising through the rest of the year.
Adjusted earnings per share were 68 cents. That was higher than the 56 cents per share last year, but below the 74 cents expected. Gross margins were about flat at 24.5%, missing consensus estimates of 24.9%.
The company raised its full-year sales forecast and said it continues to gain market share across income levels.
Shares fell as much as 5.48% after the rare miss, before recovering slightly to be trading around 4.65% lower at midday.
The context: Consumer spending remained resilient despite economic uncertainty and rising inflation. Shoppers increasingly sought value, boosting Walmart’s market share across income levels, including among wealthier consumers concerned about tariffs. The retailer also saw growth in discretionary categories and increased marketplace sales. However, profit was hit by non-operational costs and gross margins came in below investor expectations.
What they said: “As we replenish inventory at post-tariff price levels, we've continued to see our cost increase each week,” CEO Doug McMillon said, adding those costs will continue rising in the second half of the year.
“We are trying to do our best to minimize the impact on the consumer from higher tariff costs,” he said.
McMillon said consumer habits had only changed modestly, and that middle- and lower-income households had switched to cheaper alternatives, especially for product categories where prices have risen.
"Expectations were high for a margin beat and we didn't get that, so we're getting a little bit of a pullback on the stock," Steven Shemesh, a markets analysts at RBC Capital Markets was quoted as saying by Reuters.
He added that “the million dollar question” was how shoppers would react if prices started to rise more significantly. “Do consumers manage through or do they start to pull back?” he asked. “If they start to pull back, then that’s a whole different set of outcomes.”
The sources: Walmart, Bloomberg, The New York Times, Reuters
