Tariffs remain “too high” and will likely impact prices.
Walmart Inc (NYSE: WMT ) stock was dropping on Thursday, down around 5% after the opening bell after posting mixed results in its fiscal first quarter.
While the world’s largest retailer maintained its full year guidance, executives cited the challenges that higher tariffs will pose.
On the top line, Walmart reported revenue of $165.6 billion, an increase of 2.5% year-over-year. This was in line with Walmart’s own projections, but analysts had anticipated $166.02 billion in revenue, so it was a miss.
Operating income rose 4.3% in the quarter to $7.1 billion, while GAAP earnings dropped 11% year-over-year to 56 cents per share. But that includes a roughly 5 cents per share net loss on its equity and other investments, which is not germane to operational results.
Its more relevant adjusted operating income rose 3% year-over-year to $7.3 billion, while earnings were 61 cents per share, up from 60 cents per share the same quarter a year ago. This beat estimates of 58 cents per share.
Ecommerce Sales Jump 22%
Among the highlights, U.S. net sales rose 3% year-over-year to $112 billion, with operating income up 7% to $5.7 billion. Sales of health & wellness products and groceries were strong, while comparable or same store sales rose 4.5%.
Walmart International sales declined 0.3% to $29.8 billion, with operating income down 17.5% to $1.3 billion. Further, Sam’s Club sales rose 2.9% to $22.1 billion, with operating income up 11.5% to $700 million.
A bright spot was continued growth in ecommerce, with worldwide ecommerce sales up 22%. Global ecommerce was led by store-fulfilled pickup & delivery, as advertising and the marketplace fostered expedited delivery channels.
“We’re serving customers and members in more ways, which is fueling our growth,” Doug McMillon president and CEO, said. “We’re well positioned, maintaining flexibility to navigate the near-term while continuing to invest to create value for the long-term.”
Tariffs “Still Too High”
The outlook for Walmart is a bit murky, mainly due to the likely impact of tariffs. Thus, Walmart dialed back its Q2 guidance.
“Given the dynamic nature of the backdrop, and the range of near-term outcomes being exceedingly wide and difficult to predict, we felt it best to hold from providing a specific range of guidance for operating income growth and EPS for the second quarter,” John David Rainey, Walmart chief financial officer, said. “With a longer view into the full year, we believe we can navigate well and achieve our full year guidance.”
Walmart only offered Q2 revenue guidance, calling for a 3.5% to 4.5% increase year-over-year.
For the full year, guidance is unchanged, targeting 3% to 4% net sales growth, 3.5% to 5.5% adjusted operating income growth, and adjusted earnings of $2.50 to $2.60 per share. But it comes with a caveat about tariffs.
“And the guidance that we gave today, the affirmation of our full year guidance is with tariffs at this level,” Rainey said. “But let me emphasize, we still think that’s too high.”
If tariffs were to increase from current levels, it would jeopardize Walmart’s ability to grow earnings this year, Rainey said.
“Magnitude of Tariffs” Will Raise Prices
On the earnings call, Walmart executives said the tariffs, even reduced to 10%, or 30% on China, will impact prices.
“We will do our best to keep our prices as low as possible,” McMillon said on the earnings call. “But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure given the reality of narrow retail margins. In retail, managing inventory is always important.”
While about 67% of its goods come from the U.S., Chinese products represent the bulk of the remaining one-third.
“All of the tariffs create cost pressure for us, but the larger tariffs on China have the biggest impact,” McMillon said. “The cost pressure from all the tariff impacted markets started in late April, and it accelerated in May.”
In some cases, they’ll absorb the tariff costs, and in other cases, suppliers are shifting materials from tariff impacted components. But higher prices are inevitable on some goods.
“We’re positioned to manage the cost pressure from tariffs as well or better than anyone,” McMillon said. “But even at the reduced levels, the higher tariffs will result in higher prices.”
In an interview with CNBC Thursday, Rainey said consumer will start seeing higher prices toward the end of May and “certainly much more in June.”
Walmart stock bounced back a bit as the day wore on and was only down about 1% to $96 per share as of 1:15 p.m. ET. Walmart stock is up about 6% YTD.
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