Walmart concedes 'magnitude of tariffs' will push prices up

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Dow Jones NewsMay 15, 2:33 PM UTC
MW Walmart concedes 'magnitude of tariffs' will push prices up soon

By James Rogers

 

Walmart could start marking up prices in the current quarter, but the outlook for the rest of the year is unclear

 

Retail giant Walmart Inc.'s fiscal first-quarter results beat on every key metric Thursday, and it maintained its full-year outlook in the face of economic and tariff-related uncertainties. However, the company said that tariffs will push prices higher.

 

On the conference call to discuss the results, Walmart (WMT) Chief Executive Doug McMillon described the company's immediate challenge as navigating the impact of tariffs in the U.S. He said cost pressures from all the tariff-impacted markets started in late April and accelerated in May.

 

"We will do our best to keep our prices as low as possible," he said. "But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure given the reality of narrow retail margins."

 

The stock dropped 3.2% in morning trading. It initially rallied in the premarket session after the earnings report was released, then started turning lower after the post-earnings call began, in which the tariff concerns were highlighted.

 

McMillon said it was helpful that more than two-thirds of what Walmart sells is in the U.S. is made, assembled or grown in the U.S. But noted that some other countries where Walmart imports a significant amount of goods, particularly China, will put upward pressure on prices on certain categories, including electronics and toys.

 

Walmart stressed, however, that it won't let tariff-related cost pressure on some general merchandise items lead to higher food prices, according to McMillon. However, he noted that food tariffs on countries including Costa Rica, Peru and Colombia are pressuring imported items including bananas, avocados, coffee and roses.

 

"Even at the reduced levels, the higher tariffs will result in higher prices," McMillon said.

 

Chief Financial Officer John David indicated that price markups could come as early as the current fiscal second quarter. For the second half of the year, decisions will have to be made on whether to raise or lower prices on specific goods to keep inventory levels in check.

 

"Where it can get more challenging is we make decisions related to things like Halloween and Christmas farther out," Walmart executives said, according to a FactSet transcript. "And how do you make a quantity call and what tariff number do you use?"

 

But since there is still about nine months till the end of the fiscal year, Rainey said there is enough that can be done to maintain the full-year guidance for sales and operating income. The shorter term is a different story.

 

For the current fiscal second quarter, the company said it expects net sales to increase 3.5% to 4.5% in constant currency. But given the range of potential tariff-related outcomes in the coming months, Rainey said it was decided not to provide a specific range of guidance for operating income growth for the current quarter.

 

Despite all the tariff worries, Walmart joins the list of companies in several sectors that are seeing healthy consumer spending. The global trade war also sparked recent concerns about supply chain upheaval and even fears of U.S. empty shelves.

 

Adjusted earnings per share for the quarter to April 30 rose to 61 cents from 60 cents a year ago, and beat the average analyst EPS estimate compiled by FactSet of 58 cents. That marked the 12th straight quarter of bottom-line beats, according to FactSet data.

 

Total revenue grew 2.5% to $165.6 billion, above the FactSet revenue consensus of $165.69 billion.

 

Walmart's U.S. business saw net sales rise 3.2% to $112.2 billion, just below the FactSet consensus estimate of $112.6 billion. Comparable sales for Walmart U.S. stores increased 4.5% to beat expectations of 3.8%.

 

The number of transactions at Walmart U.S. stores grew 1.6% and the value of the average ticket increased 2.8%. Walmart U.S. sales were led by health & wellness & grocery, while seasonal events were strong, the company said, in a statement.

 

Walmart's membership-based warehouse business, Sam's Club U.S., saw net sales rise 2.9% to $22.1 billion, below the FactSet consensus estimate of $22.3 billion. Comparable-store sales jumped 6.7%, outpacing the FactSet consensus estimate of 4.5%, as transactions were up 4.8% and average ticket price rose 1.7%.

 

The company said that Sam's Club sales were led by grocery and health & wellness, and highlighted its fourth consecutive quarter of positive general merchandise sales.

 

For the full 2026 fiscal year, Walmart said it still expects net sales growth of 3% to 4% and adjusted EPS of $2.50 to $2.60.

 

The stock has run up 7.2% year-to-date through Wednesday while the Consumer Staples Select Sector SPDR XLP exchange-traded fund has gained 1.1% and the Dow Jones Industrial Average DJIA has fallen 1.1%.

 

The consumer-discretionary sector as a whole was lifted this week by the preliminary agreement between the U.S. and China to set tariffs on Chinese goods at a 30% rate.

 

Tomi Kilgore contributed.

 

-James Rogers

 

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05-15-25 1033ET

 
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