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Walmart has said US tariffs are driving up its costs this year, squeezing its profit margins even as more customers visit its stores in search of affordable goods.
The world’s biggest retailer said on Thursday that it had worked to hold down prices as US President Donald Trump’s tariffs on trading partners have taken hold. About a third of Walmart’s US merchandise is imported from countries including China, Mexico, Vietnam and India.
The costs of the goods it sells are starting to escalate, however, as Walmart stocks up ahead of the holiday shopping season.
“The way things have played out so far, the impact of tariffs has been gradual enough that any behavioural adjustments by the customer have been somewhat muted,” Doug McMillon, Walmart chief executive, told analysts as the company reported second-quarter results on Thursday.
“But as we replenish inventory at post-tariff price levels, we’ve continued to see our costs increase each week, which we expect will continue into the third and fourth quarters.”
The signs of tariffs affecting the retail giant come as investors pore over corporate reports and economic data for clues on whether the duties will trigger a fresh jolt of severe inflation. Federal Reserve chair Jay Powell is set to make a highly anticipated speech at the central bank’s Jackson Hole conference on Friday, in which he is expected to provide his latest views on how import taxes are affecting US prices.
Trump has insisted that the tariffs will not be inflationary and called for the Fed to drastically lower borrowing costs.
This year, Walmart executives warned they would need to raise some prices to offset the cost of tariffs, comments that prompted a blast of criticism from the president.
In the second quarter that ended in early August, like-for-like inflation increased 1.1 per cent year on year inside Walmart’s 4,600 US stores, more than double the rate in the previous quarter but well below the overall US inflation rate.
Even as Walmart raised sales guidance for the year and reported further market share from rivals, it fell short of profit expectations. The rare miss disappointed investors, with shares closing 4.5 per cent lower for their biggest one-day drop in more than four months.
Executives reiterated a long-term goal of growing operating profits at a faster rate than sales, but the quarterly results fell short of that metric.
Walmart raised its forecast for net sales this year to increase by 3.75 to 4.75 per cent, compared with its previous guidance for a 3 to 4 per cent rise. It did not raise its forecast for adjusted operating income, maintaining guidance for a 3.5 to 5.5 per cent increase.
The company reported that global revenue rose 4.8 per cent to $177.4bn in its second quarter, surpassing its earlier guidance as well as analyst estimates compiled by Visible Alpha.
However, operating profit fell 8.2 per cent to $7.3bn, reduced in part by insurance claims, litigation costs and a restructuring.
The company’s sales have boomed in the past several years as US consumers seek shelter from persistent inflation in its market-beating prices. Walmart has also been mounting a challenge to Amazon in online sales, and its sales in its ecommerce business grew 25 per cent in the quarter.
Same-store sales at Walmart US were up 4.6 per cent year on year, with strong sales in grocery and health and wellness categories.
The company said that it was building market share in all of its US product categories, with upper-income households accounting for the most gains. The solid rise contrasted with other big-box retailers that have reported results this week, with Target’s comparable sales declining 1.9 per cent and Home Depot’s increasing by a modest 1 per cent.
“We’re doing what we said we would do. We’re keeping our prices as low as we can for as long as we can,” McMillon said.
Even as Walmart has cut prices on some food items, inflation for US groceries rose about 1.5 per cent, the company said. By comparison, prices deflated in general merchandise such as clothing and electronics.
McMillon said that while he hadn’t seen any dramatic shifts in customer behaviour in response to tariff-related expenses, “not surprisingly, we see more adjustments in middle- and lower-income households than we do with higher-income households”.
Unit sales had declined in “discretionary categories where item prices have gone up”, he said. In some cases, customers are switching which products or categories they buy.
