Walmart Talks of Higher Prices Due to Tariffs; Trump Takes Exception

By Brian Nelson, CFA

On May 15, Walmart (WMT) released first quarter fiscal 2026 results that showed revenue and non-GAAP earnings per share coming in ahead of expectations. Revenue grew 2.5%, up 4% in constant currency, while operating income advanced 4.3%, or 3% when adjusted for constant currency. Walmart U.S. comp sales increased 4.5% with particular strength in health & wellness and grocery. E-commerce grew 22% thanks in part to store fulfilled pickup & delivery and marketplace and achieved profitability in the U.S. and globally in the first quarter for the first time.

Though Walmart’s performance was solid in the fiscal first quarter, the Street focused on the executive team’s commentary regarding tariffs on the conference call:

We will do our best to keep our prices as low as possible. But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure given the reality of narrow retail margins…

…we’re positioned to manage the cost pressure from tariffs as well or better than anyone. But even at the reduced levels, the higher tariffs will result in higher prices. The timing of the tariffs and our inventory receipts matters as you interpret our results by quarter…

…if we see a restoration of dramatically higher tariff levels, the impact on our financials could be significant and even jeopardize our ability to grow earnings year-over-year.

In the first quarter, Walmart’s global advertising business grew 50%, including Vizio. Membership and other income advanced 3.7% in the quarter, including 14.8% growth in membership income. Adjusted earnings per share nudged higher modestly to $0.61 in the quarter, up from $0.60 in the first quarter of fiscal 2025. At the end of the quarter, cash and cash equivalents totaled $9.3 billion, while total debt was $52.9 billion. Operating cash flow increased $1.2 billion, to $5.4 billion, while free cash flow of $0.4 billion swung into positive territory for the quarter. Walmart repurchased $4.6 billion in stock in the quarter and had $7.5 billion remaining in authorized repurchases at the end of the quarter.

Looking to the second quarter of fiscal 2026, Walmart’s net sales are expected to increase 3.5%-4.5%, which includes a 20 basis point tailwind from its acquisition of Vizio. Looking to all of fiscal 2026, the firm left its guidance unchanged. Net sales are expected to increase 3%-4%, while adjusted operating income is targeted to advance between 3.5%-5.5%, which includes a meaningful headwind from lapping leap year. Adjusted earnings per share is expected to be between $2.50-$2.60, including foreign currency headwinds. Though Walmart’s fiscal first quarter results revealed strength, President Trump took exception to Walmart’s plans to raise prices as a result of tariffs. We like Walmart, but don’t include the stock in any newsletter portfolio.

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