Concern Grows Over Walmart’s Price Rollback
Walmart shares tumbled on Thursday. Here’s why investors should hold on to the stock.
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Walmart WMT has been very good to its shareholders.
In a market that’s been particularly unkind to retailers, the Bentonville, Arkansas giant roared to a 72% gain last year, as investors applauded Walmart’s burgeoning online presence. This year has been less exciting, as the world’s biggest retailer has gained just 8.8% year-to-date.
Walmart shares were rocked for a 4.5% loss on Thursday, as the company missed earnings estimates by a significant margin. It was Walmart’s first earnings shortfall since May 2022. Analysts were also disappointed by the company’s full year earnings projections.
Not As Bad As It Seems?
The news wasn’t all bad. Walmart’s earnings miss was driven in part by $450 million worth of one-time charges, related to workers’ compensation and liability claims. U.S. same store sales were up by 4.6%, well ahead of the 4.2% estimate. Net sales for fiscal 2026 are now expected to climb by 3.75% to 4.75%, a 75 basis point increase above Walmart’s previous estimates.
Technical Positives and Negatives
Despite Walmart’s post-earnings gap to the downside, the stock remains above its 50-day moving average (blue). Walmart remains within shouting distance of its all-time closing high of $105, set in February (green arrow).
On the negative side, the stock did see its heaviest turnover in six months (black arrow), an indication that institutional investors may be lightening up on the stock. Also, a key trendline is no longer intact (green dotted line).
No doubt, institutional investors are concerned about the potential effects of tariffs on Walmart. This week's report did nothing to assuage those fears.
What Does It Mean for the Economy?
When the world’s biggest retailer comes up short on earnings, what does it say about the global economy? And what can we learn by looking at Walmart’s competition?
Target TGT came in ahead of estimates, but shares sold off anyway, as some blamed the Minneapolis, Minnesota-based retailer’s choice for a new CEO. Shares of Amazon AMZN, the world’s largest online retailer, still haven’t recovered after the Seattle-based company reported earnings on July 31. Best Buy BBY, which reports earnings next week, has already lost 16% this year in a bull market.
Inflation continues to take its toll on consumers. That’s why it's so important to keep inflation in check, as indicated here. Another bout of inflation might be positive for gold and other hard assets, but it would be devastating for the average consumer.
Bottom Line
There are legitimate concerns about weakness in the retail sector. Consumers are tapped out due to inflation. Jobs are getting harder to come by.
I can acknowledge these issues, and still keep holding Walmart. Walmart could actually thrive in a weaker economy, as consumers "trade down." I believe this company has only scratched the surface of its online sales potential. Despite this week’s disappointing earnings report, I have no intention of selling.
At the time of publication, Ponsi was long WMT.
