Walmart Reports Slowest Sales Growth in Six Years

What happened

Walmart reported second-quarter results showing U.S. comparable sales growth of 2.6%, marking its slowest pace since the early stages of the pandemic in 2020 and falling short of analyst expectations of 3.5%. Total revenue increased 5.9% year over year to $187.9 billion, driven by 23% growth in e-commerce sales and a 38% surge in global advertising revenue. However, in-store sales declined as customers became more selective with their spending. The company also cited new federal drug pricing rules that reduced Medicare prescription costs, which had an 80-basis-point negative impact on comparable sales. Adjusted earnings per share rose 19.1% to $0.81, boosted by a $2.9 billion tariff refund related to import duties later overturned by the U.S. Supreme Court. At Sam's Club, comparable transactions increased 7%, but average ticket size fell 2.5%, indicating customers are shopping more frequently but purchasing less per visit.

Why it matters

The slower sales growth signals consumers are pulling back on spending as higher gasoline prices strain household budgets. The national average for regular gasoline rose to $4.10 from $2.98 amid elevated oil prices, prompting shoppers to make trade-offs. Walmart executives acknowledged this pressure, noting a psychological impact when fuel prices exceed $4 per gallon. The company is responding by reinvesting tariff refunds into price cuts across thousands of products, particularly groceries and general merchandise, with approximately 11,000 price reductions already implemented. Walmart has also benefited from more affluent customers trading down to discount retailers as their budgets tighten. Despite the slowdown, the company raised its full-year net sales guidance to 4% to 5% growth (up from 3.5% to 4.5%) and operating income growth to 7.5% to 8.5% (up from 6% to 8%), reflecting confidence in its pricing strategy and ability to gain market share.

Bigger picture

Walmart's results reflect broader pressures facing the U.S. consumer amid elevated inflation and fuel costs. Inflation ticked up to 3.4% from 2.4% before the U.S.-Israeli conflict with Iran, which has contributed to higher oil prices. The company expects at least $2 billion in additional costs this year from rising gasoline prices. Walmart's ability to attract higher-income customers trading down demonstrates the widening impact of economic pressures across income levels. The company's multi-year e-commerce momentum, expanding third-party marketplace, and growing global advertising business position it to weather the slowdown better than many competitors. However, the stock's sharp 9% decline after earnings suggests investors had priced in continued acceleration, with shares trading at a price-to-earnings ratio above 40 earlier this year-a valuation typically reserved for growth stocks rather than defensive retailers.

What to watch

Monitor whether Walmart's price cuts effectively drive traffic and market share gains in coming quarters. The company expects the impact of its 11,000 price reductions to become more apparent in the months ahead. Watch for signs of stabilisation or further deterioration in comparable sales growth, particularly as the company laps easier comparisons from 2020. Key metrics include the trajectory of average ticket size at Sam's Club and the balance between transaction growth and spending per visit. Executives will also need to demonstrate whether the tariff refund reinvestment strategy can offset ongoing fuel price pressures. Finally, watch for updates on Walmart's full-year guidance, particularly whether operating income can reach the 7.5% to 8.5% growth target amid a softer consumer environment.