Walmart stock has its worst collapse since 2023. Retailer expects prices to rise due to fuel

Walmart, the world's largest retailer, fell in trading on Thursday, May 21, at the strongest pace in more than 1.5 years - since November 2023. The company disappointed the market with forecasts and warned of likely price increases due to rising fuel costs. Meanwhile, consumers are already starting to suffer the effects of war in the Middle East.

Walmart shares were down 7.9% in trading on Thursday, the largest decline in a day since November 2023, Bloomberg reported. The reason for the negative reaction of investors was the confirmation of the forecast for the current, 2027 fiscal year, as well as the quarterly forecast, which was worse than expected, writes CNBC.

Analysts called Walmart's full-year forecast conservative, Reuters noted: it implies adjusted earnings per share in the range of $2.75 to $2.85 and sales growth of 3.5 to 4.5%. From the second quarter, the retailer expects adjusted earnings per share of 72 to 74 cents, as well as net sales growth of 4-5%.

Walmart's first quarter operating profit fell by about $175 million due to higher fuel costs, Reuters writes. The company recognized that higher energy costs are starting to affect consumers as well. It has seen the average amount of fuel per fill-up from shoppers fall below 10 gallons (about 38 liters) for the first time since 2022, Chief Financial Officer John Ramey told CNBC. If fuel costs don't come down, price increases for customers could continue in the second quarter and second half of the year, Bloomberg quoted him as saying.

Low-income consumers are becoming increasingly cautious amid financial pressures, while affluent shoppers continue to spend aggressively, Ramey adds. Higher tax refunds previously mitigated the effect of rising fuel prices, but this supportive factor is now fading.

Walmart achieved revenue growth of 7.3% to $177.8 billion in the first quarter, with operating profit adding 5%. Comparable sales in U.S. stores excluding fuel rose 4.1%, slightly exceeding the expectations of analysts from Wall Street, according to Bloomberg. The growth was driven by increases in the number of purchases and the volume of goods sold. Online sales in the U.S. added 26%. The company is increasing its focus on apparel, electronics and other non-food categories, where Walmart recorded its largest market share gain in five years, the report said.

Walmart is the largest retailer in the world, and its results are considered a barometer for measuring the health of the economy because of the company's size and its extensive presence in the U.S. and other markets, Bloomberg writes.

"Walmart remained one of the few major retailers whose shares were trading near multi-year highs, and a mere reaffirmation of the full-year guidance was not enough to support further gains in the stock," said Zacks Investment Research strategist Brian Hayes, whose view was quoted by Reuters.

One of the reasons for the stock's fall was the company's continued financial report, according to GlobalData managing director Neil Saunders, quoted by Barron's. "We take a slightly different view. Despite a serious deterioration in the financial situation of consumers - largely due to gasoline prices and inflation, to which Walmart's core audience is very sensitive - the company has maintained its outlook for the full fiscal year," Sanders said. The analyst said Walmart's sales forecast still assumes a "healthy growth rate" and that achieving that performance "would be another impressive result."

The situation in Walmart reflects the general picture in the U.S. retail industry, Bloomberg writes. The company's competitors - Target and Home Depot - also this week announced the stability of consumer demand despite macroeconomic pressure.

More cautious signal is given by producers of consumer goods: Kraft Heinz and McDonald's are more restrained against the background of previously imposed duties (subsequently canceled) Trump administration and geopolitical tensions in the Middle East, which create risks for demand, notes Bloomberg.

Since the beginning of the year, Walmart shares have grown by 9% (taking into account the fall in quotations on Thursday). By comparison, Target's securities have grown by 29% over the same period, and Home Depot's have declined by 8.8%.

The average target price of Walmart securities is $140.3, which means a potential upside of 7.4% from the last closing price. Analysts are mostly optimistic about the retailer's stock: 38 out of 43 have given the stock a Buy and Overweight rating, which means a Buy recommendation. Four analysts take a neutral stance, one more analyst recommends selling the stock.

This article was AI-translated and verified by a human editor