When the biggest retailer in the US reports its earnings, you can bet there will be plenty to unpack, which is why we’ve combed through Walmart’s Q1 quarterly reports and investor calls to find the most interesting data points and quotes.
Here are some of the biggest takeaways:
Simply unpredictable: To start, Walmart is holding off on issuing guidance for Q2 due to economic uncertainty surrounding tariffs, which even at a reduced rate could throw the company’s accounting out of whack.
“Given the dynamic nature of the backdrop, and the range of near-term outcomes being exceedingly wide and difficult to predict, we felt it best to hold from providing a specific range of guidance for operating income growth and EPS for the second quarter,” CFO John David Rainey said in a statement.
In a buy-side investor call, Rainey elaborated on what’s going on: Since tariffs could significantly increase costs, it’s hard to determine what markups will be for the coming quarter. Especially if tariff rates continue to change, the company could find itself in a position where it has marked up inventory costs based on a 30% rate, but then has to mark down that inventory after the rate is cut.
It also can’t be certain of how consumer demand will respond to higher prices, making sales projections more difficult.
That’s the ticket: Also on the inventory front, Rainey noted that Walmart is cutting back on purchasing “higher ticket items” in the range of 10%–20%, with the goal of making sure it’s “flowing inventory effectively.”
- Sales of general merchandise were slightly negative for the quarter at Walmart US, while grocery sales were up mid-single digits and health and wellness were up in the high teens.
Rainey added that Walmart doesn’t want to get in a situation where a seasonal item such as a patio set is clogging up its inventory come winter, which is another reason getting the pricing right is so important. Price items too high, and they won’t sell. That’s why Walmart could end up absorbing higher costs on some items, while increasing prices in other categories to balance out its margin, even raising prices on items that are not affected by tariffs in some cases.
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“In some cases, we’ll absorb costs within a category or department and not simply pass on a tariff cost attributable to each item individually,” CEO Doug McMillon said in an earnings call. “We’ll be managing mix across items, categories, and businesses.”
How low can they go: And yet Walmart has committed to keeping food prices cheap, even as it sees cost pressure on some imported items such as coffee, bananas, avocados, and roses.
“We want to keep our food and consumables’ prices as low as we can,” McMillon said. “We won’t let tariff-related cost pressure on some general merchandise items put pressure on food prices.”
In practice, McMillon said this could mean controlling for variables such as fresh food waste in order to bring down costs.
He also acknowledged that Walmart is hoping for “changes from a policy point of view” to help lower costs on food items not grown in the US.
The price problem: Yet for all these qualifications and subtleties, at the end of the day prices could still rise at Walmart. “We’re positioned to manage the cost pressure from tariffs as well or better than anyone,” McMillon said. “But even at the reduced levels, the higher tariffs will result in higher prices.”