By Hannah Ziegler — Walmart warns it will raise prices within weeks because of tariffs
Walmart warned Thursday that price increases look certain – possibly within weeks – reinforcing that even the world’s biggest retailer is not immune from President Donald Trump’s trade war.
“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,” Walmart chief executive Doug McMillon said Thursday during a call with analysts after the company reported quarterly results.
Several major brands have warned that Trump’s tariff campaign could raise prices, stymie supply chains and push inflation-battered consumers to a breaking point.But analysts have said that Walmart’s growing popularity with high-income shoppers could allow it to pass on costs to those who can afford them while holding the line on essentials.
Because groceries account for the bulk of Walmart’s revenue, analysts say the retailer can source more products domestically, leaving it less exposed to tariffs than rivalsmorefocused on clothing or appliances.
Walmart on Thursday posted sales of $165.6 billion for its fiscal quarter that ended April 30, a 2.5 percent increase year-over-year, narrowly missing analysts’ forecasts. Though McMillon said last month that the company might accept lower profits in the short term because of tariffs enacted in April by the Trump administration, operating income actually rose 4.3 percent.
As cost pressures from tariffs ramped up in late April and continued into May,Walmart said in a release that “substantial uncertainty” remains.Even so, the company stuck with its full-year forecast of 3 to 4 percent net sales growth – which it first outlined in February before Trump’s tariff plans took shape. It also expects fiscal second-quarter net sales growth of 3.5 to 4.5 percent.
Walmart historically has performed well in uncertain times and is seen as a bellwether for the health of U.S. consumers. During the pandemic and 2008 financial crisis, the company lowered its prices to go after market share and emerged with a bevy of loyal shoppers, said Bill Kirk, an analyst at Roth Capital Partners.
“We’ve seen during periods of economic uncertainty in the past, we tend to gain share and come out of the other side in an even stronger position,” Walmart chief financial officer John David Rainey told analysts Thursday. “We expect this period to be no different. We’ll play offense … but we’re not fully immune from the financial impacts in the short term.”
Households earning more than $100,000 annually helped drive Walmart market share gains in its last several quarters, executives said during investor calls. Those high-income shoppers can subscribe to Walmart’s paid membership program or spend extra on delivery fees, and the company can use that revenue to offset costs for more value-focused consumers, Kirk said.
Walmart reported U.S. profitability for its e-commerce business for the first time in its most recent quarter, with sales in that segment popping 21 percent. One-third of Walmart’s e-commerce customers paid extra for one- or three-hour delivery, Rainey said Thursday.
The Bentonville, Arkansas-based retailer’s success with wealthier consumers – and the booming e-commerce business driving it – gives it enough cash to stay “aggressive” as tariffs squeeze other companies, said Joe Feldman, an analyst at Telsey Advisory Group.
“They’re just better positioned to handle it than anybody else,” Feldman said.
Walmart’s product mix could also shield it from import duties, analysts and experts said before the company’s earnings report Thursday.
Certain tariffs on U.S. trading partners such as Vietnam and Taiwan that are currently paused will probably drag down discretionary categories such as apparel, accessories and home goods, said Steven Carnovale, an associate professor of supply chain management at Florida Atlantic University. While Walmart sells those products, about 60 percent of its revenue came from grocery sales in its most recent fiscal year.
Most grocery products get sourced from the United States, which gives Walmart’s supply chain a stronger backbone than retailers that sell more imported clothes, accessories and electronics, Carnovale said. Even if grocery import costs rise, Walmart can spread that expense across big-ticket items such as appliances and furniture, which wealthier shoppers may still buy during uncertain economic times, he said.
“Since so much of their sales are from food, and the vast majority of food is produced domestically, they’re, in my eyes, substantially less exposed,” said Jason Miller, a supply chain management professor at Michigan State University.
Walmart said Thursday that it wants to keep food prices low, even as it navigates rising import costs for clothing, household goods and electronics. But tariffs on imports from countries such as Costa Rica, Peru and Colombia, which produce food that U.S. farmers can’t grow domestically or in sufficient quantities, have already led to higher costs for bananas, avocados, coffee and roses, McMillon said.
For nonfood products subject to tariffs, Walmart plans to move production to different countries – a difficult task, McMillon said, but one the company has been “working on for years.” The retail giant can also distribute these added costs across entire categories to keep shelf prices steady.
But Walmart is not completely shielded from a trade war. More than two-thirds of the goods Walmart sells are “made, grown or assembled” domestically, McMillon told analysts Thursday, but the rest are imports that mostly come from China, Mexico, Vietnam, India and Canada.
Walmart imports fewer goods from China than retailers that compete less in the grocery aisle, but analysts said no company escaped unscathed from the last month of tariffs. U.S. levies on Chinese imports soared to 145 percent in April before the Trump administration this week announced a deal to lower them to 30 percent for 90 days.
McMillon acknowledged that high tariffs on goods from China, especially those impacting electronics and toys, pose the greatest threat to the company. Walmart does not disclose the percentage of products it imports from China, but Evercore ISI analyst Greg Melich estimated that figure was about 10 percent in an April 9 research note. China provides 20 percent of Amazon’s imports into the U.S. and 30 percent for Target, Melich estimated.
Walmart’s supply chain is one of the strongest in retail, which gives it tremendous negotiating power with suppliers and foreign governments, Melich told The Washington Postlast month. Some Walmart suppliers have gotten “creative” to dodge tariffs and swapped tariffed aluminum for levy-free fiberglass, McMillon said.
Unlike its competitors, Walmart probably has supply chain redundancies that make it easier to shift production quickly, said Alan Baer, the chief executive of OL USA, a logistics company. For example, he said, even if Walmart prefers to import a certain style of white T-shirt from China, its suppliers in countries such as Vietnam, Thailand and Indonesia can easily manufacture the same product.
Walmart also gets better deals on shipping costs. According to one industry official, who spoke on the condition of anonymity to disclose nonpublic information, Walmart typically pays $400 to $600 less per shipping container compared with other retailers.
Walmart is often the largest customer for the container shipping companies it works with, and when it signs a contract to move its goods, that often sets the floor for others as they negotiate prices, Baer said. Once its products arrive in the U.S., Walmart’s efficient domestic supply chain and national distribution network give it an even stronger advantage over its competitors, Baer said.
“It’s almost like you’re taking Legos and piling them up on top of each other, and Walmart just happens to be the bottom brick because it’s always there, every week, all the time,” he said.
Walmart’s footprint in China, where it operates nearly 300 stores, and its importance to the U.S. economy also make it “an honest broker” in Trump’s trade war, Melich said: “In many ways, they’re in the middle of it.”
“They’re not immune, but they’re certainly better than average,” he said. “They’re doing as good a job as anybody.”
