Walmart shares suffered their worst one-day drop since 2022 after the retailer said it would spend roughly $2.9 billion in tariff refunds on lower prices, a move that will weigh on its third-quarter results. The stock is now down about 7% on the year even as Walmart raised its full-year profit outlook.
The retailer fell the most in a single day since 2022 after saying it will use about $2.9 billion in tariff refunds to lower prices for shoppers. That decision will hurt its third-quarter results. The retailer added that consumers appear stretched by high gasoline prices, but that overall spending remains resilient, helped by wage growth.
As a result, the stock is now down about 7% on the year as of Aug. 20.
Soft Q3 guidance despite a raised full-year outlook
Walmart has long positioned itself as the low-cost leader, so the decision to pass its tariff refund on to shoppers isn't a surprise, though it will pressure near-term sales growth and margins. For the third quarter, the company forecast sales growth of 3% to 3.75%, well below the nearly 6% consensus. Its adjusted earnings-per-share guidance of $0.62 to $0.64 fell short of the $0.68 analysts expected.
Despite that, Walmart raised its full-year outlook, now projecting adjusted EPS of $2.80 to $2.87 on sales growth of 4% to 5%, up from a prior forecast of $2.75 to $2.85 on 3.5% to 4.5% revenue growth. The company expects the price cuts to accelerate sales and help it gain market share.
Second-quarter sales topped estimates
Walmart's fiscal second-quarter revenue rose nearly 6% to $187.94 billion, topping the $186.77 billion consensus compiled by LSEG. U.S. store sales climbed 3.5% to $125.2 billion, with same-store sales up 2.6%, transactions up 1.5% and the average ticket up 1.1%. E-commerce sales surged 24%.
Internationally, sales climbed nearly 13% to $35.2 billion, up nearly 8% in constant currencies, with China posting nearly 21% constant-currency growth. Sam's Club U.S. sales, excluding fuel, increased 4.5%. Companywide, adjusted earnings per share climbed 19% to $0.81, topping the $0.74 consensus.
Still not cheap after the sell-off
Walmart has kept growing through varied economic conditions, in part by drawing in more affluent shoppers seeking higher-quality groceries and same-day delivery alongside its traditional low-price base. Even as lower-income customers have shown some strain, the retailer has continued to post gains.
The tariff-refund decision will crimp near-term results, but the article's author argues it should again build strong customer loyalty and calls that a good long-term trade-off. Even so, the stock trades at nearly 36 times current fiscal year earnings estimates and nearly 32 times next year's, a valuation the article's author called still not cheap despite the pullback.
Source: Fool
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