Walmart's stock tumbled over 8% (and in some reports 9%) on Thursday, dragging down the broader U.S. stock market, following its second-quarter earnings report. The company announced its slowest U.S. comparable sales growth in six years, increasing by only 2.6%. This figure was below Wall Street's expectation of a 3.8% increase, according to FactSet and LSEG. Excluding the wellness category, impacted by federal legislation capping prices on some high-cost Medicare drugs, comparable sales rose 3.4%, still missing projections.
Despite the slower comparable sales growth, Walmart's overall revenue for the fiscal second quarter increased by 5.9%, driven by a 23% jump in global e-commerce sales. However, the disappointing comparable sales figures and cautious sales guidance for the rest of the year led to investor concern. For the third quarter, Walmart expects net sales to increase between 3% and 3.75% and adjusted earnings per share to be between $0.62 and $0.64. The company upgraded its full-year net sales growth forecast to between 4% and 5%, up from a previous outlook of 3.5% to 4.5%, and adjusted earnings per share guidance to between $2.80 and $2.87, from $2.75 to $2.85.
Walmart's financial results were notably bolstered by nearly $3 billion in tariff refunds, with approximately $100 million still pending. CFO John David Rainey stated that these funds would be used to lower prices for consumers, with the impact expected in the third quarter. This strategy aims to help shoppers who are facing increased strain from high fuel and food costs. The company also anticipates incurring over $2 billion in "incremental cost headwinds related to higher fuel prices" this year, a consequence of soaring global oil prices stemming from the U.S. and Israel's war with Iran. Walmart noted a psychological impact on consumer choices when fuel prices exceeded $4, leading them to lean heavily into price reductions, including over 11,000 rollbacks in the second quarter for items like summer barbecue products. Analysts raised concerns about the sustainability of these price rollbacks and their potential impact on margins, given that the tariff refunds were a one-off benefit.
Consumer spending, which accounts for roughly 70% of U.S. GDP, showed signs of pullback as inflation ticked up. Foot traffic in Walmart's brick-and-mortar stores increased by only 1.5% for the quarter, down from 3% in the previous quarter, though e-commerce sales saw a significant 24% rise in the U.S. The slower in-store sales, which remain the company's primary offering, contributed to the cautious outlook despite the upgraded annual forecast. Walmart's earnings report is often viewed as an economic bellwether, reflecting the financial health of the U.S. consumer.
