Walmart warns it can't hold on price forever with tariff hit coming
'If you've not already seen it, it will happen in May and then it will become more pronounced,' Chief Financial Officer John David Rainey said of price hikes in an interview.
Walmart's shares rose 2.2% in premarket trading. The stock had gained 7.2% this year through Wednesday, topping the S&P 500 Index, which had been little changed.
While the company plans to hold pat on its full-year sales and profit guidance, it opted not to give guidance on income for the ongoing quarter due to the inability to confidently predict 'trade discussions taking place is changing by the week, and in some cases by the day,' the company said in a statement on Thursday. 'The lack of clarity that exists in today's dynamic operating environment makes the very near-term exceedingly difficult to forecast.'
The range of outcomes is 'pretty extreme,' Rainey said, adding that the company is bracing for a bigger hit from the trade war and overall economic malaise in the coming months.
Trump's trade war has upended operations for businesses across all industries. While temporary agreements – including the latest 90-day deal with China – are expected to alleviate short-term pressure on the supply chain, the whiplash has made it tough for companies to respond or plan.
Most consumer-facing companies have reported soft results in recent weeks, citing volatility in demand and economic disruption. Procter & Gamble Co. and Kraft Heinz Co. slashed their annual outlooks, while Southwest Airlines Co. and other airlines have voiced concerns about a looming recession. Just a handful of names — such as Tapestry Inc. — has posted upbeat reports.
Walmart's results now raise the pressure for competitors scheduled to report in the coming weeks, including Home Depot Inc. and Target Corp. The retailer's performance also tends to serve as a barometer of the US economy, so the fact that Walmart performed well but is still warning investors of more tariff pain ahead is an ominous sign.
'It's a challenging environment to operate in retail right now, with prices going up like this. There really hasn't been a historical precedent or prices going up this high, this fast,' Rainey said. 'The magnitude of the tariff increases though are so large that retailers can't absorb these by themselves.'
There hasn't been major changes in prices across the industry so far, Rainey said, though tariff-related increases are hitting stores now and Walmart expects them to become more significant as the year progresses. The company said it will monitor such changes and how its competitors respond to them.
Walmart is better-positioned than other retailers to weather the range of challenges. The company's global supply chain allows it to source products from a wide range of regions, while its scale means it can negotiate better deals with suppliers.
Known for low prices, the company typically performs well during times of economic hardships when people gravitate toward deals. Its digital operations are also giving Walmart a leg-up. The retailer is drawing more shoppers with its pickup and delivery services, and bringing in more higher-income shoppers into to buy groceries and things like cold medicine and baby products.
Advertising and newer units are generating higher profit margins than its core store operations, giving it cushion to invest in prices and other parts of the business.
Walmart said its online business posted a quarterly profit for the first time during the latest period.
Speaking during analyst day in April, Walmart executives had said they viewed the tariff environment as an opportunity to gain market share and signaled their intent to keep prices low.
Still, there's been greater week-to-week sales volatility and pointed to factors putting near-term pressure on profits: It wants to be ready to invest in prices as tariffs are enacted, and consumers are buying more groceries that tend to have lower margins. Categories like electronics, home and sporting goods have taken a hit, while rising egg prices were also notable in the quarter.
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