Walmart’s (WMT) Growth Engine Hums, But Warning Lights Flicker
Price investment is doing real work too. Walmart plowed roughly $2.9 billion in tariff refunds back into everyday prices, pushing rollbacks to 11,000 items in the quarter, up from 7,200 at the end of the first quarter. That helped push adjusted operating income up 17.4% in constant currency and lifted adjusted earnings per share to $0.81 from $0.68 a year earlier. Management raised full-year sales guidance to 4% to 5% growth and adjusted earnings guidance to $2.80 to $2.87 a share. The company's AI shopping assistant, Sparky, is gaining traction too, with usage up 70% from a year ago and users spending 40% more per order. And Walmart has raised its dividend for 53 straight years, a streak that carried its stock 21.6% higher in 2008 while the broader market collapsed.
None of that comes cheap. Walmart's stock trades at a clear premium to the broader market, a multiple that already assumes growth keeps accelerating rather than merely holding up. Revenue grew 5.1% year over year excluding currency effects on August 25's read of the quarter, respectable but visibly slower than prior years, and the market share gains coming from higher-income shoppers have their limits.
Cost pressure is building underneath. Walmart now expects more than $2 billion in incremental fuel costs this year beyond its original guidance, and CFO John David Rainey warned of "near-term macro crosswinds" pressuring consumers. US consumer confidence fell in August to its lowest level since January, a backdrop that makes further price hikes harder to justify even as fuel and insurance costs climb. US operating expenses already deleveraged 72 basis points on higher self-insurance claims, depreciation, and healthcare costs. Health and wellness sales, hit by drug-pricing regulation and a shift from branded to generic drugs, subtracted 125 basis points from Walmart US comparable sales, and in-store comps stayed negative for a second straight quarter. Add a dividend yield of just 0.9%, and income investors are leaning almost entirely on price appreciation, not the payout, for their returns.
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