Walmart net income down 12.1%, execs note potential tariff concerns

Walmart posted first-quarter revenue growth of 2.5% after currency headwinds of $2.4 billion. Revenue topped $165.61 billion, below analysts estimates. Membership income, a component of gross revenue, was up 3.7% from a year ago to $1.628 billion.

Net income before adjustments was down 12.1% to $4.487 billion. Net earnings per share were 58 cents compared to 63 cents earned in the same period last year. Adjusted earnings came in at 61 cents, exceeding the 58 cents analysts projected, but shares traded lower to start the day.

“We delivered a solid first quarter in a dynamic operating environment,” Walmart CEO Doug McMillon said, adding that the retailer is “well positioned, maintaining flexibility to navigate the near-term while continuing to invest to create value for the long-term.”

McMillon said Walmart’s growth is not a result of inflation, but rather more units sold and higher overall transactions during the quarter. He said the quarter was better than Walmart expected on the bottom line and on the top line.

Walmart results are closely watched because the retailer is seen as a bellwether for consumer sentiment and spending, which continues to be choppy. Walmart said it expects sales growth of 3.5% to 4% in the second quarter, but it did not issue an earnings outlook because of uncertainty around U.S. tariffs.

Global e-commerce sales grew 22%, led by store-fulfilled orders, pickup and delivery, and marketplace growth. The global advertising business grew 50%. Vizio and the Walmart Connect advertising business in the U.S. segment was up 31%.

Walmart’s operating cash flow increased $2.1 billion from a year ago to $5.4 billion. Inventory levels also increased along with higher sales. Walmart reported inventory of $57.5 billion, up 3.8% year over year. Walmart grew its gross profit rate to 24.2% in the quarter, led by improvements in Walmart U.S. and lower levels of markdowns.

U.S. STRENGTH
Walmart’s U.S. business had comp sales rising 4.5%, up from 3.8% reported a year ago. Transactions grew 1.6% and the average ticket rose 2.8%. E-commerce growth was the bulk of comp sales numbers, with online sales rising 21% from a year ago.

The U.S. business reported total revenue of $112.2 billion, up 3.2% from a year ago. Operating income rose 7% to $5.7 billion. The business was buoyed by advertising revenue growth of 31% and a now-profitable e-commerce business led by store-fulfilled orders, pickup, delivery, and marketplace growth.

Inventory levels in the U.S. business increased 4.5%, but Walmart said in-stock levels remain healthy, and extra stock relates to buying ahead of tariffs proposed and implemented by the Trump Administration.

McMillon said while Walmart cannot fully absorb the entire impact of the tariffs, even at the lower rates recently reached, given the low overall margins in the business.

“We are in a position to manage cost controls from tariffs better than anyone, but even at the lower levels, the tariffs will result in higher prices,” he said during his pre-recorded call.

Walmart Chief Financial Officer John David Rainey said Walmart is wired for to offer low prices, but the magnitude of the tariff increases is more than any retailer can absorb

“I’m concerned that consumers are going to start seeing higher prices by later this month or certainly by June,” he said.

SAM’S CLUB GAINS
Sam’s Club posted revenue growth of 2.9% to $22.1 billion in the quarter. Comp sales rose 6.7%, excluding fuel, with transactions growth of 4.8% and ticket growth of 2.7%. E-commerce provided a 3.5% bump to the overall comp sales metric. Sam’s reported e-commerce sales were up 27% in the quarter with delivery growth rising 160%.

Membership income rose a steady 9.6% with growth in member counts and renewal rates. Operating income for the segment was $686 million, up 11.5% with growth led by grocery, health and wellness, and general merchandise. The Member’s Mark private brand grew sales by roughly 10% in the quarter, outpacing segment comps.

Inventory grew by 7.1%, but the retailer said it is experiencing higher inventory turn rates and lower days on hand as consumers are buying the items. Fresh meat, produce and floral grew sales comps by roughly 13% in the quarter. Beverage, snacks and dry grocery sales comps were up around 6%. Health and wellness saw comp sales growth around 17%, driven by pharmacy and over-the-counter values. Apparel and home had softer sales, posting comps around 2%.

MIXED INTERNATIONAL 
Walmart’s diverse international business unit reported a mixed quarter, posting revenue of $29.8 million flat to a year ago before the $2.4 billion ding from currency fluctuations. Sales growth was led by China, Flipkart, Walmex and Canada, which each reporting higher transaction counts and increased unit volume sales.

Membership income grew 22%, led by Sam’s Club in China. Walmart International reported ecommerce sales up 20% and advertising revenue growth of 20%, led by Flipkart. Operating income on a constant currency basis was down 6.4% from growth investments made in the Flipkart, Walmex and Canada operations.

Gross net income totaled $6.3 billion, down 3.3% as the the segment saw higher expenses from rising wages. Inventory declined slightly in the quarter amid format changes in larger markets like Mexico.

Walmex grew sales 3% year over year and also reported e-commerce sales growth of 19%. Results were enhanced from 188 new store openings in the past 12 months. Canada reported modest comp sales growth of 0.9%, while overall sales rose 1.1% and e-commerce sales were up 23% from a year ago. China’s comp sales growth was 16.8% and net sales grew 22.5% from a year ago and e-commerce sales improved 34%.

Walmart shares (NYSE: WMT) traded lower on the commentary the retailer made about tariff impacts on prices. Before the earnings report, shares were up 7.3% year to date, rising more than 4% in the past month. Those gains were erased in early Thursday trading. Shares lost roughy half of their 7.3% gains in the morning session. Over the past 52 weeks the stock has traded between $62.94 and $105.30.