The largest retailer in the United States just put a number on where the American consumer starts to crack, and the market did not like the answer.
Walmart shares fell more than 9% Thursday, dragging the Dow Jones Industrial Average down roughly 650 points, or 1.2%, after the company reported fiscal second-quarter results that beat on nearly every line except the one investors cared about most. US comparable sales grew 2.6% in the quarter ended July 31, well short of the 3.7% Wall Street expected and the slowest pace since the fourth quarter of 2020.
The $4 Threshold
Chief Financial Officer John David Rainey pointed analysts directly at the gas pump. "When fuel prices increase and get above $4, perhaps there's a psychological impact to that," Rainey said. "Consumers are making trade-offs."
That threshold is no longer hypothetical. The AAA national average sat at roughly $4.14 a gallon on Thursday, up from $4.08 in early August and $3.80 on July 6 — a 7.5% climb in a month, and a record seasonal high for August in AAA's data. Drivers paid an average of $4 a gallon during the second week of August for the first time on record.
The pressure at the pump traces back to the Strait of Hormuz. Brent crude climbed toward $93 a barrel Thursday, up more than 4% on the week, after President Trump said there were no ongoing talks with Tehran and signaled he would lean on a naval blockade rather than further airstrikes to squeeze Iran's economy. The UAE separately suspended financial and economic transactions with Iran after accusing Tehran of firing ballistic missiles at its territory.
Strong Quarter, Cautious Guide
The underlying business was not weak. Revenue rose 5.9% to $187.9 billion, ahead of the roughly $186 billion consensus, and adjusted earnings came in at $0.81 per share against $0.74 expected. US e-commerce sales jumped 24%, and Walmart Connect, the company's advertising arm, grew 43%. Net income still fell to $6.37 billion from $7.03 billion a year earlier.
Walmart also collected nearly all of an expected $2.9 billion in tariff refunds, with just under $100 million outstanding, according to Rainey. The company said it is plowing those savings back into lower prices on grocery and general merchandise rather than dropping them to the bottom line.
That windfall let Walmart raise its full-year outlook, now guiding to net sales growth of 4% to 5%, up from 3.5% to 4.5%, with adjusted earnings of $2.80 to $2.87 per share. Investors read the earnings range as conservative against prior Street estimates closer to $2.97.
The Broader Tape
The retail news landed on an already unsettled market. The S&P 500 closed at 7,655, down 0.69%, while the Nasdaq Composite fell 0.9% as bond yields rebounded following the Treasury's surprise buyback intervention earlier in the week. Gold slipped 0.81% to about $4,481 an ounce after Wednesday's surge, while silver held near $67 after a 6.4% jump.
Walmart's read on the consumer matters beyond its own shelves. When the country's biggest retailer says shoppers are making trade-offs at $4 gas, it is a data point on inflation's second-round effects that no CPI print captures directly.
Sources: CNBC, Yahoo Finance, Al Jazeera, Benzinga, TheStreet, AAA Fuel Prices, Trading Economics