Updated May 15 4:18 p.m. ET
The trade war price hikes are coming, even to the discount giant Walmart Inc., where low prices are a point of pride.
Doug McMillon, president and chief executive officer, turned in first-quarter earnings that nudged past analyst estimates — but he isn’t making any profit promises for the second quarter as the early days of U.S. President Donald Trump’s trade war work through the retail system.
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The geopolitics of trade have calmed enough — with Trump cutting tariffs on Chinese goods to 30 percent from 145 percent — that Walmart was comfortable enough to stick with its guidance for the full year.
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But price hikes are coming.
“Our short- and longer-term opportunities are clear. The immediate challenge is obviously navigating the impact of tariffs here in the U.S.,” McMillon told analysts on a conference call.
“We will do our best to keep our prices as low as possible,” the CEO said. “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.
“Managing inventory is always important,” he said. “In this situation, it’s even more important and even more challenging. It’s helpful that we’re entering the second quarter with well-managed inventory. It’s helpful that we’re crossing the threshold of profitability with e-commerce globally.”
Walmart’s first-quarter earnings slipped 12.1 percent to $4.5 billion, or 56 cents a diluted share. But adjusted earnings per share of 61 cents came in 3 cents ahead of what analysts forecast, according to Yahoo Finance.
Revenues for the quarter ended April 30 increased 2.5 percent to $165.6 billion.
“There’s a lot to like about how we’re changing and where we are,” McMillon said. “We feel great about our team, our strategy and our stores and clubs. We feel great about how we’re driving e-commerce growth in a way that not only serves customers and members better but reshapes our business model, resulting in a more profitable business with higher returns over time.”
The retail giant’s global e-commerce business grew by 22 percent, fed by pickup and deliveries from the company’s stores as well as its online marketplace of third-party goods. Walmart expects to soon be able to ship goods to 95 percent of the U.S. population in three hours or less.
And the advertising business grew by 50 percent, including the addition of the Vizio television business, while the Walmart Connect membership program grew by 31 percent.
While Walmart forecast sales growth of 3.5 percent to 4.5 percent in the second quarter, it held back on making other commitments.
John David Rainey, executive vice president and chief financial officer, said in a statement: “Given the dynamic nature of the backdrop, and the range of near-term outcomes being exceedingly wide and difficult to predict, we felt it best to hold from providing a specific range of guidance for operating income growth and EPS for the second quarter. With a longer view into the full year, we believe we can navigate well and achieve our full-year guidance.”
This year, the company continues to expect adjusted earnings of $2.50 to $2.60 a share as sales increase 3 percent to 4 percent.
Michael Lasser, a stock analyst at UBS, said Walmart “showcased its resilience during a highly volatile first quarter. We think this is a proof point that Walmart will be able to successfully navigate what could prove be a challenging operating environment for retailers.
“It also shows that the attributes of its model are working regardless of the backdrop,” Lasser said. “Its scale, value-focused approach, and investments are all bearing fruit.”