Walmart reported its slowest U.S. comparable sales growth in six years during its most recent quarter, prompting a more than 8% drop in its shares and contributing to a broader market decline. The retailer's cautious guidance for the remainder of the year has amplified concerns about the financial well-being of lower-income shoppers navigating rising costs.
In the second quarter, Walmart's comparable sales in the U.S., which include sales from stores open for at least a year and online sales tied to those locations, increased by 2.6%. This marks a decrease from the 4.1% growth recorded in the first quarter. Excluding the wellness category, which includes the company's pharmacies, comparable sales rose 3.4%. Walmart attributed a portion of the dip in the wellness category to federal legislation requiring pharmacies to dispense certain high-cost Medicare drugs at capped prices. This figure also fell short of Wall Street projections, which anticipated a 3.8% increase.
Despite the slower sales growth, Walmart's quarterly profit exceeded expectations, bolstered by a $2.9 billion tariff refund. The company reported that its overall revenue also topped forecasts, and it continues to gain market share. Walmart stated it is using the U.S. tariff refunds, stemming from a Supreme Court ruling that found President Donald Trump overstepped his authority on import taxes, to temporarily reduce prices on 11,000 items, focusing on groceries and general merchandise.
Walmart is facing economic pressures similar to those affecting consumers, including rising energy costs. The company anticipates an additional $2 billion in incremental fuel costs this year. Chief Financial Officer John David Rainey noted that gasoline prices above $4 per gallon have a "psychological impact" on consumer choices, leading to trade-offs. The price of a gallon of gasoline recently reached $4.10.
Alongside the slowdown in physical store sales, Walmart is undergoing a strategic shift toward e-commerce, its membership program Walmart+, and advertising. The company's domestic e-commerce business, a significant growth driver, saw a 24% increase. E-commerce now accounts for 23% of Walmart's overall U.S. business, doubling its share from five years ago. "As these businesses scale, they become a more meaningful part of our mix, and they’re changing the shape of our business," said CEO John Furner.
Considered a barometer of consumer spending due to its extensive customer base, Walmart's performance may attract further attention following recent weak U.S. retail sales data for July and growing pessimism about the economy revealed by the University of Michigan's consumer sentiment survey. Notably, Walmart continues to capture market share from higher-income households, with the largest gains coming from households earning over $100,000 annually.
For the three-month period ending July 31, Walmart reported a net income of $6.37 billion, or 80 cents per share. Adjusted per-share results were 81 cents, surpassing the 74 cents expected by Wall Street analysts. Total sales increased 5.9% to $187.94 billion, exceeding the predicted $186.62 billion.
Looking ahead, Walmart projects earnings per share between 62 cents and 64 cents for the third quarter, with sales expected to grow between 3% and 3.75%. For the full year, the company forecasts earnings per share in the range of $2.80 to $2.87 and sales growth of 4% to 5%. This forecast places full-year sales between $741.7 billion and $748.8 billion, falling short of analysts' expectations of $2.90 per share and $752.06 billion in sales.