Walmart watched its shares drop nearly 9% mid-day on Aug. 20 after reporting a mixed financial quarter. David Bellinger — an analyst at Mizuho Financial Group — went as far as to call the quarter a "worst-case scenario," saying the company hadn't fallen this far short of expectations in years.
Walmart posted $6.4 billion in net income over the quarter ending July 31, with adjusted earnings of 81 cents a share versus 74 cents forecast by analysts, Revenue also climbed 5.9% to $187.9 billion.
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That's all positive. The problem was Walmart's U.S. same-store sales growth, a key metric for retailers, missed expectations. Excluding fuel, sales grew just 2.6%, marking the company's lowest period of growth since early 2020, when much of the country was in lockdown due to the pandemic.
Why one number rattled Wall Street
Since Walmart has a broad customer base, investors use its U.S. store sales as an indicator for household spending. Chief financial officer John David Rainey told analysts the company is looking at "arguably a softer consumer environment than in February," when it set initial forecasts for the year.
Rising gas prices help explain the reluctance on the part of shoppers to spend big. The average price of gas currently costs $4.10 per gallon nationwide, according to AAA, up from $2.98 per gallon before the Iran war began.
Rainey said the shift was visible almost month by month, with June "a little more obvious" as shoppers grew choosier about what went in their carts. On top of that, the cost of most goods and services remains elevated, with inflation currently at 3.4%.
To be fair, Walmart's sluggish in-store sales growth can also be attributed to its shrinking pharmacy revenue, as the Trump Administration looks to lower the cost of prescription drugs, especially GLP-1 drugs. Last month, prescription drug prices fell 0.8% and are down 3.1% from a year ago, according to BLS data cited by Axios. Drug prices also haven't risen in any month so far this year.
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