Walmart reported its slowest sales growth in more than six years in the most recent quarter, indicating that American consumers are experiencing economic strain. The retail giant attributed the slowdown primarily to the rising cost of fuel.
Comparable store sales, excluding fuel, increased by 2.6% between May and July, according to the company. To help retain customers and encourage spending, Walmart plans to use up to $3 billion in anticipated tariff refunds to lower prices. These refunds are a result of duties the retailer paid after former President Trump imposed tariffs on imported goods, which were later ruled unlawful, leading to rebates from the government.
This strategy of price reductions, termed "rollbacks," has been a key focus for Walmart. The company expanded its rollback program earlier this year, implementing 11,000 price cuts across various product categories. Chief financial officer John David Rainey noted that these lower prices are already contributing to an increase in transactions and unit sales, particularly for food and other essential items like toys.
However, Rainey acknowledged that the retail environment remains challenging. He highlighted that lower-income households, a significant customer base for Walmart, are feeling financial pressure. The increase in gasoline prices above $4 per gallon has directly impacted shoppers' disposable income, leading to a noticeable shift in consumer behavior. By June, the effect became evident as lower-income customers reduced their spending and prioritized essential purchases.
Beyond the consumer pullback, Walmart's financial results were influenced by other factors. A significant portion of the quarter's profit increase came from one-time tariff refunds. Analysts suggest that these benefits may not be as substantial in future quarters. The ongoing price rollbacks could potentially affect profit margins, while the company also continues to invest in automation, new warehouses, and technological upgrades.
During an earnings call, executives addressed concerns about whether price reductions are driving sales and if some rollbacks could be sustained long-term. Walmart indicated that the benefits are most pronounced in food and staples, and that certain price cuts may be maintained if they continue to appeal to shoppers. Rainey stated that the company's intention is to make rollbacks permanent wherever feasible.
Executives also expressed confidence in Walmart's ability to continue growing income despite flagging sales, pointing to revenue streams from membership programs and advertising as potential growth areas.