Walmart issued a worse-than-expected fiscal 2027 outlook on Thursday, citing higher gasoline prices that are squeezing lower- and middle-income shoppers, and warned that the strain will deepen as a tax-refund tailwind fades into the summer.
The Bentonville, Arkansas-based retailer's downgrade lands at a moment when its quarterly numbers are still expanding. First-quarter revenue rose 7 percent to $177.8 billion, and Walmart's e-commerce and advertising businesses kept growing at double-digit rates. But the company's own guidance suggests that the U.S. consumer, propped up earlier this year by tax refunds, is about to absorb more of the cost of an Iran war that has pushed pump prices to multiyear highs.
The numbers
Walmart reported net income of $5.33 billion, or 67 cents per share, for the three months ended April 30, compared with $4.49 billion, or 56 cents per share, a year earlier. Adjusted earnings per share came in at 66 cents, in line with analyst estimates compiled by LSEG. Shares slid about 2 percent in premarket trading.
The retailer kept its full-year forecast for adjusted earnings per share at $2.75 to $2.85, below the $2.91 consensus, and guided second-quarter adjusted earnings to 72 to 74 cents, against expectations of 75 cents. Walmart said it expects net sales to rise 3.5 percent to 4.5 percent for the year and 4 percent to 5 percent in the current quarter.
Fuel headwind
Chief Financial Officer John David Rainey told CNBC that higher fuel prices created a $175 million headwind in the first quarter and that the hit is likely to widen.
"I think higher tax returns muted some of the pressure related to higher fuel prices and as were in a period of time right now where those tax refunds are largely not coming in, I think consumers are going to feel more of that pressure from higher fuel prices," Rainey said.
Regular gasoline averaged $4.56 a gallon nationwide on Thursday, NBC News reported, citing AAA, compared with $2.98 just before the Iran war began. Diesel averaged $5.66, roughly $2 higher than at the start of the conflict.
High-margin engines
Global e-commerce sales climbed 26 percent in the quarter and the company's global advertising business jumped 37 percent, both high-margin streams that Walmart has leaned on to keep shelf prices low. Higher-income households continue to drive an outsized share of the chain's gains, a shift that has insulated it from earlier shocks to lower earners.
The counterpoint
Rivals have so far described a sturdier consumer. Target, which reported Wednesday, said its net sales rose more than 6 percent over last year, NBC News reported, and CNBC noted that Target on Wednesday suggested higher tax refunds may have fueled some of the growth it saw in the first quarter. Citi analysts estimate Walmart could collect more than $10 billion and Target more than $2 billion in refunds tied to a Supreme Court ruling earlier this year against some of President Trump's tariffs, potential windfalls that Walmart said are not built into its guidance.
Rainey told CNBC that Walmart's second-quarter guidance for operating income is the best the retailer has issued in roughly a decade and a half, a wager that the company can absorb a fuel hit likely to exceed the first quarter's $175 million and still deliver on the year.