Walmart forecasts price increases in Q1, maintains optimistic outlook for full fiscal year.
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Walmart to Raise Prices Amid Tariff Battle
Here's the lowdown on Walmart's latest earnings report and their plans to navigate the tariff storm.
Walmart reported a solid first quarter, with diluted earnings per share at $0.56, slightly below last year's number but outshining analysts' expectations. The retail giant's revenue rose by 2.5% year over year, amounting to $165.6 billion. Same-store sales (or "comps") jumped by 4.5 percent from the previous year, with a 1 percentage point increase attributed to the leap year. Walmart's stock sank by 0.5 percent by the close of Thursday following the earnings announcement.
Brace Yourself for Higher Prices
Despite remarkable growth, Walmart is wrestling with a challenging equation: maintaining low prices for shoppers amid escalating tariffs. In a new 90-day trade deal, the U.S. will slash tariffs on Chinese imports from a staggering 145 percent to a more feasible 30 percent. However, tariffs still take a bite out of the retailer's pocket.
John David Rainey, the chief financial officer, pointed out that less than a third of Walmart's U.S. sales come from imported goods, mostly from China, Mexico, Canada, Vietnam, and India. Although the reduced tariffs are a relief, they won't entirely ease the burden.
"We're hard-wired for everyday low prices," Rainey explained to CNBC. "But tariff-induced costs are too immense for us to absorb. These costs are also too much for suppliers to bear. I'm anxious that consumers will start noticing higher prices. You'll see that, likely towards the end of this month, and certainly more in June."
Walmart's pricing model assumes stable cost-to-price ratios. Given the current situation, costs are on the rise, making it tricky for the retailer to pass these increases to price-sensitive consumers. This poses a threat to profit margins.
Analysts at TD Cowen, who rate Walmart stock as a buy, forecast that retailers like Walmart may not feel the full impact of tariffs, or experience significant margin pressure, until sometime later.
Walmart's leadership underlined their commitment to maintaining affordable grocery prices during discussions with investors.
"We're determined to keep food and consumables prices as low as we can," CEO Doug McMillon said on the earnings call. "Food prices have been on the rise in the U.S., and our customers have felt it. We won't let tariff-related pressure on general merchandise items compromise food prices."
That being said, McMillon noted potential price pressures for specific items imported from Colombia, Costa Rica, and Peru, such as bananas, avocados, coffee, and roses. To minimize the impact on food prices, McMillon highlighted measures such as reducing fresh food waste.
For the second quarter, Walmart predicts net sales to increase by 3.5 percent to 4.5 percent. The company has maintained its full-year guidance for net sales to grow between 3 percent and 4 percent, and for adjusted earnings per share to range from $2.50 to $2.60.
Investors were generally optimistic about Walmart's earnings report, with analysts from Bank of America Securities and J.P. Morgan rating the stock as a buy and overweight, respectively.
Caveat: Investors are encouraged to conduct their independent research before investing.
- In the light of escalating tariffs, Walmart's chief financial officer, John David Rainey, acknowledges that consumers may start noticing higher prices as the retail giant struggles to maintain its low-price business model amid increased costs.
- Walmart's commitment to affordable grocery prices remains firm, despite potential price pressures for specific items like bananas, avocados, coffee, and roses, which are imported from countries like Colombia, Costa Rica, and Peru.
