Retail bellwether Walmart saw its shares plunge sharply on Thursday, 20 August, falling 10% to a nine-month low of $103 apiece after the company missed quarterly comparable sales estimates for the first time in more than five years. The slowdown came as shoppers pulled back on spending amid rising gasoline prices.
US comparable sales, a closely watched benchmark, grew 2.6% excluding fuel, slowing from 4.1% in the first quarter and coming in below analysts’ estimates compiled by Bloomberg.
The pace of growth, hindered primarily by pricing pressure in Walmart’s pharmacy business, was the slowest in more than six years. The retail giant said its pharmacy operations weighed on US sales due to federal negotiations that resulted in lower drug prices.
Walmart cited the impact of a price cap on 10 top-selling pharmaceutical products that took effect on 1 January. Comparable sales growth has now slowed for two consecutive quarters, while the retailer had earlier warned that elevated fuel costs could weigh on earnings.
Excluding health and wellness, Walmart’s US comparable sales rose 3.4%, its slowest pace since the first quarter of fiscal 2023. The company said it continued to gain market share, including in groceries, as it lowered prices on various products.
Despite the slower US sales growth, Walmart reported fiscal second-quarter revenue of $187.94 billion, up 5.9%, while adjusted earnings came in at $0.81 per share. Both figures exceeded market expectations.
The results were boosted by US tariff refunds, although Walmart said the benefit was partially offset by price reductions.
Rising fuel prices prompt consumers to make trade-offs
Consumer spending has remained relatively resilient in recent months despite persistent concerns over inflation and geopolitical tensions. However, consumers have become increasingly selective about their purchases, prioritising value and looking for good deals.
“When fuel prices increase and get above $4, perhaps there’s a psychological impact to that … consumers are making trade-offs,” CFO John David Rainey said on a call with analysts on Thursday.
Lower-income households, in particular, have pulled back their spending amid elevated gasoline prices. Consumer sentiment also declined for the first time in three months in August, while the labour market has shown signs of weakness.
Store traffic growth slowed to 1.5% in the latest three-month period from 3% in the first quarter, reflecting the moderation in consumer spending.
Full-year outlook raised
Despite the challenges during the latest quarter, the retail giant raised its full-year guidance for sales and adjusted operating income. Walmart now expects fiscal 2027 net sales to grow between 4% and 5%, compared with its earlier forecast of 3.5% to 4.5%.
It expects third quarter adjusted earnings per share of between 62 cents and 64 cents, below estimates of 68 cents, while its net sales growth target of 3% to 3.75% was also lower.
Meanwhile, Walmart shares have retreated in recent months, partly on concerns that the company’s US growth could decelerate as investors hold a high bar due to its lofty valuation.
(With inputs from Bloomberg and Reuters)
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