Walmart's (WMT) fiscal second-quarter US comparable sales growth decelerated more than Wall Street expected amid a pharmacy-related headwind, while the retail giant issued a soft earnings outlook for the ongoing three-month period.
US comparable sales excluding fuel rose 2.6% in the quarter ended July, slowing down from the prior-year period's gain of 4.6%. The FactSet-polled consensus had called for an increase of 3.9%.
The stock slid 9.1% in Thursday trade.
The metric was "slightly below" the company's initial expectation due to lower health and wellness sales, which were impacted by a 125-basis-point headwind related to changes in regulation around maximum fare pricing around certain drugs, Chief Financial Officer John Rainey said during an earnings call, according to a FactSet transcript.
The fair pricing regulation's drag on US same-store sales growth was larger than Truist Securities' expectation, it said in an emailed client note. Last week, Deutsche Bank and RBC Capital Markets separately said that they expected Walmart to miss second-quarter comparable sales estimates.
The retailer said it anticipates adjusted earnings of $0.62 to $0.64 for the third quarter, while the Street is looking for $0.68. Sales are pegged to rise by 3% to 3.75% on a constant currency basis, compared with the average analyst estimate for reported sales growth of 4.8%.
The company is projecting a sales headwind of more than 100 basis points in the current period due to a timing shift of its Indian e-commerce platform Flipkart's Big Billion Days event between the third and fourth quarters, Rainey said in the earnings release.
Second-quarter adjusted earnings rose to $0.81 a share from $0.68 a year earlier, topping the consensus on FactSet for $0.74. Total revenue, which includes membership and other income, improved 5.9% to $187.94 billion, ahead of the market's forecast of $186.62 billion.
The company has so far received "substantially all" of the roughly $2.9 billion of tariff refunds it was eligible for, and aims to reinvest that into pricing and merchandise, Rainey told analysts.
Earlier this year, the US Supreme Court ruled that the Trump administration lacked authority under the International Emergency Economic Powers Act to impose certain tariffs, paving the way for refunds to companies that had paid the duties.
Target (TGT) lifted its full-year outlook on Wednesday as tariff refunds helped double the retailer's fiscal second-quarter earnings year over year.
For fiscal 2027, Walmart now expects adjusted EPS between $2.80 and $2.87, up from its prior guidance of $2.75 to $2.85. Sales are anticipated to rise by 4% to 5% at constant currency terms, compared with 3.5% to 4.5% previously expected. The Street is looking for non-GAAP EPS of $2.90 and a reported sales gain of 5.5%.
"We're raising our full-year guidance to reflect confidence in our ability to sustain growth and share gains," Rainey said on the call. "Importantly, we're raising in the face of more than $2 billion of incremental cost, tied to higher fuel prices and arguably a softer consumer environment than in February when we introduced our initial outlook. As such, we feel it's prudent to remain cautious by only raising the guide modestly."
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