Walmart reports rare sales miss as consumers cut spending, shares fall

Walmart experienced a rare sales miss in the second quarter, missing comparable sales estimates for the first time in over five years. The strain of rising fuel costs on consumer spending was a key factor in the decline, leading to an 8% drop in the company's shares in early trading. Despite raising its annual sales and profit targets, Walmart expects fuel prices to remain steady, resulting in $2 billion in incremental fuel-related costs above initial guidance.

CFO John David Rainey suggested a potential psychological impact on consumers as fuel prices surpass $4, leading to trade-offs in spending. U.S. same-store sales grew by 2.6%, falling short of the estimated 3.8% increase. Average ticket, or spending per transaction, rose by 1.1%, well below the 3.1% year-over-year growth. Walmart slashed prices on 11,000 items during the quarter, but cautioned that the price reductions began in July, and the associated sales growth might not materialize until the following quarter.

The company reaped nearly all $2.9 billion in tariff refunds and is reinvesting the savings in price, with a focus on grocery and general merchandise categories. However, the benefits of these price investments may not be immediately apparent. Walmart now anticipates fiscal 2027 net sales growth between 4% and 5%, up from its previous target of growth between 3.5% and 4.5%.

Slower store traffic growth, down to 1.5% from 3% in the first quarter, was a significant concern for investors. Walmart Connect, its U.S. advertising business, grew by 43%, while e-commerce sales increased by 24%. Nevertheless, the growth rates in these areas were insufficient to offset the decline in in-store sales and overall sales performance.

Core U.S. comparable sales, excluding the impact of the Inflation Reduction Act's Maximum Fair Price program, rose by 3.4%, the slowest pace since the first quarter of fiscal 2023. Walmart expects fiscal-year adjusted earnings per share between $2.80 and $2.87, a slight beat of its earlier target range of $2.75 to $2.85. However, its quarterly earnings per share of 81 cents exceeded estimates by 7 cents.

For the upcoming third quarter, Walmart anticipates adjusted earnings per share between $0.62 and $0.64, below analysts' expectations of $0.68.