Walmart posts worst comparable sales performance in six years
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Walmart posted its worst U.S. same-store sales growth in more than six years, raising questions about the health of the American consumer, even as the company raised its outlook for the full fiscal year.
Why it matters: As the world's largest retailer, Walmart has long been viewed as a bellwether for the economy and the health of the consumer.
Driving the news: The chain recorded U.S. comparable sales growth of 2.6% in the second quarter when excluding fuel, trailing Wall Street's expectation of about 3.5%, according to TD Cowen analysts.
- "Given the significant role Walmart plays in the lives of many Americans, the deterioration will set some alarm bells ringing over whether the consumer is running out of steam," according to GlobalData retail analyst Neil Saunders.
- "It also raises the question as to whether the helpful gains from more higher-income shoppers migrating to Walmart are starting to fade."
The impact: Walmart shares plunged 8.9% in midday trading.
Reality check: Walmart raised its fiscal year net sales outlook from a range of 3.5% to 4.5% to a range of 4% to 5%.
- It also increased its adjusted earnings-per-share outlook from a range of $2.75 to $2.85 to a range of $2.80 to $2.87.
- "While we acknowledge the US comp number may hold shares back today, we remain encouraged by WMT's ability to gain share and grow profits faster than sales," TD Cowen analyst Oliver Chen wrote in a research note.
Yes, but: Investors were expecting a bigger boost to the outlook, according to Goldman Sachs analyst Kate McShane.
- Walmart CFO John David Rainey said on an earnings call that the company felt "it's prudent to remain cautious by only raising the guide modestly" in part because it's facing "arguably a softer consumer environment than in February when we introduced our initial outlook."
By the numbers: The chain recorded a 5.9% increase in revenue in the quarter, to $187.9 billion, compared with a year earlier, edging S&P Capital IQ expectations of $186.8 billion.
- That included a 24% rise in U.S. e-commerce sales, which drew strength from store-fulfilled delivery, advertising and online marketplace sales.
- The company cited merchandising strength in grocery sales, personal care items, beauty, pet supplies, toys and fashion.
Threat level: Drug price declines — caused in part by the federal government's Medicare prescription drug regulation — undermined the retailer's U.S. sales.
- The company cited GLP-1 drug prices as a particular factor, "as script growth was more than offset by price-mix headwinds."
- America is experiencing its biggest prescription drug price deflation in generations, Axios' Courtenay Brown reported Monday.
What to watch: Walmart said it is reinvesting tariff refunds in prices, which might've irked investors who were hoping they would bolster margins.
- "You'll see a combination of rollbacks across food, general merchandise, consumables, fashion," Furner said on the call. "You'll see it throughout the store."
Editor's note: This story was updated with additional information from Walmart's earnings call and analyst coverage, as well as the latest share-price reaction.
