Walmart's stock experienced an 8.6% decline on Thursday following the release of its second-quarter earnings report, which revealed the slowest sales growth for the retail giant in over six years. The dip in performance is largely attributed to cost-conscious shoppers reducing discretionary spending as higher gasoline prices consume a larger portion of their budgets.
In the second quarter ending July 31, U.S. comparable sales, encompassing both store and digital channels operating for at least a year, increased by 2.6%. This marks the smallest quarterly rise since 2020, according to company statements. Walmart Chief Financial Officer John David Rainey noted that customers appeared to be making difficult choices between necessities due to the elevated cost of fuel. "It appears there were choices between necessities within the quarter because of where gas prices are," Rainey stated.
To attract hesitant shoppers, Walmart has been implementing price reductions on select items, particularly those where consumers feel financial pressure, such as beef. The company received a substantial $2.9 billion tariff refund, which has helped to fund these price adjustments. While prices at Walmart remain higher than the previous year due to increased costs, the retailer anticipates further discounts in the third quarter. Walmart is also expecting to incur over $2 billion in additional costs related to higher fuel prices this year.
Despite the overall slowdown, Walmart observed continued consumer spending from higher-income households, defined as those earning over $100,000 annually. These customers have maintained spending, particularly on groceries, toys, fashion, and private label brands. The company has also raised its full-year sales and income forecasts, expressing confidence in its strategy to boost sales through further price reductions.
Walmart now projects net sales to increase between 4% and 5% for the full year, an upward revision from its previous estimate of 3.5% to 4.5%. Operating income is expected to grow between 7% and 8.5%, up from a previous range of 6% to 8%.
Analysts noted that the results were mixed. Michael Lasser, an equity research analyst at UBS, maintained a bullish stance on Walmart despite the varied performance. The company's second-quarter U.S. comparable sales were also affected by regulatory changes in pharmacy pricing, which, if excluded, would have shown a 3.4% growth. However, this figure would still have fallen short of analysts' estimates of a 3.8% gain.
Walmart reported a 5.9% increase in net sales, reaching $186.1 billion, while net income saw a 9.4% decrease to $6.37 billion.
Evolving Digital Landscape
Concurrently, Walmart is navigating a significant shift in consumer behavior as online shopping continues to grow. This transition presents a challenge for a company historically reliant on its vast network of physical superstores for the majority of its profits. In the second quarter, Walmart's U.S. e-commerce sales surged by 24%, a figure that includes revenue from its advertising business operating on its website and in stores.
"The relevance of store comps, I think, is not as pertinent as it was a decade ago," Rainey commented, suggesting a reevaluation of how sales are tracked. "We are not the Walmart of a decade ago." He highlighted that items ordered online and picked up at physical locations are currently categorized as e-commerce sales. Executives are reportedly discussing whether to adjust reporting methods to better reflect the company's evolving business model.