Walmart’s second quarter results show that U.S. consumers across the spectrum flock to retailers’ stores despite economic headwinds, but the stock is pervasive as the company’s margins fades and inventory costs have risen.
The world’s largest retailer has scooped up market share from rivals as wealthy consumers visit stores more frequently and worry about the impact of tariffs on prices, the company’s results showed Thursday.
This has driven an 85% surge in stocks for half since last year, when some analysts say it has made its valuation too high.
Earnings for the second quarter were lower than expected, with stocks down 4% in the midday New York trading as Walmart registered its first earnings error in over three years.
Investors also focused on quarterly gross profits at Walmart, despite raising fiscal year sales and profit forecasts.
According to Brakerage Da Davidson, the overall total margin was 24.4%, 24.5% and 24.4% against the previous quarter, with a 24.9% consensus estimate missing.
“We’ve been working hard to get the most out of our business,” said Steven Shemesh, an analyst at RBC Capital Markets.
Still, the results of the Bentonville, Arkansas-based chain continue to benefit from increasing price sensitivity among Americans, with revenues of $177.4 billion in the second quarter. Analysts were expecting an average of $17.616 billion, according to LSEG data. The 68 cent earnings per share adjustment for the second quarter did not meet the expectations of the 74 cent analyst.
Consumer sentiment weakened due to fear of tariffs that promote higher inflation, reaching the final line of several retail chains, but Walmart’s sales were resilient. Walmart McMillon said companies were able to pay these taxes through the inventory frontline, but when those products are sold, the next freight will become more expensive.
“As we restock stock at post-tension price levels, costs continue to increase each week,” he said in a call with analysts, saying these costs will continue to increase later this year. The impact of tariffs was gradual enough to allow consumer habits to be modestly changed.
Walmart had warned this summer that it would raise prices to offset tariff-related costs for certain goods imported into the US. Consumer-level inflation has risen modestly, but wholesale inflation rates skyrocketed to the fastest rate in July in over three years.
According to a S&P Global Survey released Thursday, the input prices paid by companies reached three months’ highs in July, with companies cited tariffs as the main driver. As businesses handed the costs to consumers, the prices they charge for goods and services have been three years higher. A day ago, rival targets warned of tariff-induced costs pressure.
Walmart received a boost from a more keen online strategy as more customers rely on home delivery. Global e-commerce sales rose 25% in the second quarter, with Walmart saying a third of delivery from stores took within three hours.
Shoppers adapt to higher prices
McMillon expects that current shopping habits will continue into the third and fourth quarters. He said middle and low-income households are making significant adjustments in response to price increases by reducing the number of items in their baskets or opting for private label brands. This shift is not seen among high-income households, which Walmart defines as those who earn more than $100,000 a year.
Walmart expects annual revenue to grow in the range of 3.75% to 4.75%, compared to forecasts of 3% to 4% increase so far. Adjusted earnings per share are expected in the $2.52 to $2.62 range, compared to the previous range of $2.50 to $2.60.
Chief Financial Officer John David Rainey said the company is considering more financial results than before due to trade policy consultations, uncertain demand and the need to maintain flexibility for future growth. Based on what it saw in the second quarter, Walmart expects the impact on profits and revenues from product costs in the current quarter will be less than previously thought, Rainey said.
“The wide range of consumers and macro trends remain in the favor of Walmart, especially in the form of consumers who want to maximize bangs for their money,” said Neil Sanders, managing director of retail consultant Global Data.
Walmart’s total US equivalent sales increased 4.6%, while analyst estimates increased 3.8%. The company noted that strong customer response to over 7,400 “rollbacks” led to discounted prices and increased grocery rollbacks by 30%.
Average spending in Till, which rose 3.1% from a 0.6% increase last year, saw an increase in customer visits falling from 3.6% in the previous year to 1.5%. Walmart recorded a 40% growth in market sales, including electronics, cars, toys, media and games.
Two-thirds of what Walmart sells in the US are sourced domestically, executives said last quarter, giving insulation from tariffs compared to their competitors.
