Walmart Stock Falls Despite a Higher Earnings Forecast. Here’s Why.

Walmart’s adjusted earnings per share were softer than Wall Street had projected. (JC MILHET/Hans Lucas/AFP via Getty Images)

Walmart raised its financial forecasts for the fiscal year, but its earnings fell slightly short of Wall Street’s expectations. The stock was down 4.3% approaching midday on Thursday, becoming the worst performer in both the S&P 500 index and the Dow Jones Industrial Average, which were both 0.4% lower.

Walmart’s revenue for the quarter ended Aug. 1 rose 4.8% year over year to $177.4 billion, ahead of projections for $175.9 billion, according to FactSet.

Adjusted earnings per share were softer than Wall Street was projecting, coming in at 68 cents a share, compared with estimates for 73 cents. The adjusted figure excludes one-time gains on equity and other investments, costs related to legal matters, and restructuring charges, Walmart said. Some of these cost pressures will moderate in the back half of the year, Walmart said in emailed comments to Barron’s.

With shares trading at 36 times forward earnings, investors expect a lot from Walmart. An earnings miss doesn’t meet the high bar markets have placed on the company.

Earnings aside, however, Walmart had a “robust” quarter, wrote Rupesh Parikh, an analyst at Oppenheimer. Walmart U.S.’s same-store sales grew by 4.5% in the quarter, outpacing most competitors.

“The company is clearly building on momentum from its core U.S. business in key categories including grocery and essential home items,” wrote Bryan Hayes, strategist at Zacks Investment Research. “Walmart hasn’t missed on the top line since 2020.”

The company’s strong sales growth reflects market share gains across key categories, the company said, as customers respond to pricing rollbacks and e-commerce offerings. Sales momentum allowed the company to slightly raise its guidance for the fiscal year.

Walmart now sees net sales rising 3.75% to 4.75% from last year, compared to prior guidance for a range of 3% to 4%. Walmart also tweaked its earnings forecast, saying it now expects adjusted earnings per share to range from $2.52 to $2.62. The previous outlook was for $2.50 to $2.60.

Walmart predicts third-quarter sales will increase 3.75% to 4.75%. Analysts had factored in a 3.8% sales increase. Adjusted earnings per share will range from 58 cents to 60 cents compared to forecasts calling for 57 cents.

“WMT’s Q2 print highlights strong traffic and price investments driving share gains with U.S. comp growth well ahead of peers,” wrote Corey Tarlowe, an analyst at Jefferies. “Core margin levers remain intact, suggesting continued earnings durability & future upside.”

Indeed, Walmart’s management said on Thursday that sales remained strong at the start of the third quarter despite continued uncertainty about the economic environment.

“We aren’t seeing dramatic shifts,” said CEO Doug McMillon on a call with investors Thursday. “The way things have played out so far, the impact of tariffs has been gradual enough that any behavioral adjustments by the customer have been somewhat muted.”

That doesn’t mean there has been no reaction. Costs are increasing by the week as the company replenishes its inventory at higher tariff rates, McMillon added. Lower- and middle-income households are starting to respond accordingly, adjusting their shopping more than wealthier people are, he said.

Price increases on some discretionary goods have hurt unit sales for those items, hinting that consumers are becoming less tolerant of them.

Walmart plans to counter that inflation weariness by cutting more prices in the coming months. The company’s sheer scale gives it ample leverage to negotiate rollbacks of what vendors charge it, ensuring the company isn’t absorbing those full financial impact.

As consumers become increasingly price-sensitive, this advantage should set Walmart apart from competitors, analysts say. “While tariffs introduce some near-term uncertainty, the focus on value and market share supports a favorable setup for sustained outperformance,” Jefferies’ Tarlowe wrote.

Corrections & Amplifications: Doug McMillon is CEO of Walmart. A previous version of this article incorrectly said Dough McMillon was Walmart’s chief executive.

Write to Sabrina Escobar at sabrina.escobar@barrons.com