Walmart Outperforms But Tariff Concerns Weigh on Confidence

The retail industry is having a tough go right now and it looks like things are definitely going to get harder before they get better. Walmart, for example, warned, this week, that prices are definitely going to go up when the higher tariffs on Chinese goods go into effect. And this comes on the heels of the world’s largest retailer reporting its best comparable sales growth in Q1 in nearly a decade. 

More specifically, US President Donald Trump increased tariffs on $200 billion worth of Chinese imports, from 10 percent to 25 percent.  Many, of course, expected this will raise the prices on a wide variety consumer goods in the United States. This includes everything from clothing to furniture to electronics. 

Sure enough, Walmart Chief Financial Officer Brett Biggs said, in an interview, these high tariffs will have a certain impact on prices. He also attempts to assuage that the company is doing what they can to reduce this risk by looking for other product suppliers—perhaps from other countries—or by working with the suppliers they have to restructure costs.

The potential impact on Walmart—and, of course, its faithful shoppers—is also limited by its food business.  Walmart’s grocery operation, which includes fresh produce, actually accounts for 56 percent of the company’s overall revenue. 

In addition, Walmart’s US Chief Executive Officer Greg Foran said, in a conference call this week, the company will work to uphold its “low-price leadership” in the retail world, mostly by managing costs on an “item-by-item basis.” And the pressure is on, in fact, not only because of the rise in online shopping but also the increasing competition from new discount chains like Aldi.

At the same time, it should be noted that Walmart’s vendors have also already started raising prices.  Del Monte foods, for example, supplies both fresh and packaged goods (mostly known for their fruit) will likely raise their prices again as tariffs rise. 

Still, on Thursday, Walmart shares have improved 7 percent this year, so far, and jumped another 4 percent, to $103.84.  Adjusted earnings per share in the first quarter were $1.13, which is notably better than the $1.02 analysts had expected.

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