US shoppers made it through the summer with less tariff impact than expected but that could soon change.
Walmart, the world’s largest retailer, said on its quarterly earnings call that tariffs were now hitting its imported merchandise.
“As we replenish inventory at post-tariff price levels, we’ve continued to see our cost increase each week,” chief executive Doug McMillon said on a call with analysts, noting those costs will continue rising in the second half of the year.
The effects of tariffs have so far been gradual enough for US consumer habits to change only modestly.
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Walmart had warned it would increase prices this summer to offset tariff-related costs on certain goods imported to the US, a move that drew criticism from US president Donald Trump.
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Consumer-level inflation is increasing modestly, while wholesale inflation spiked in July to its fastest rate in more than three years. According to an S&P Global survey released on Thursday, input prices paid by businesses hit a three-month high in July, with companies citing tariffs as the key driver.
Prices charged by businesses for goods and services hit a three-year high, as companies passed along costs to consumers. A day earlier, rival Target warned of tariff-induced cost pressures.
Walmart’s results on Thursday show US consumers across the spectrum are still flocking to the retailer’s stores despite economic headwinds, but shares dipped as the company’s margins ebbed and inventory costs rose.
The world’s largest retailer has scooped up market share from rivals as wealthier consumers frequent the store more often, worried about the effects of tariffs on prices.
That’s fuelled an 85 per cent surge in the stock over the last year-and-a-half that some analysts say has made its valuation too lofty.
Shares were down 4 per cent yesterday, as its second-quarter profit was lower than expected, registering Walmart’s first earnings miss in more than three years. Its 12-month forward price-to-earnings ratio of 36.64 is roughly double the industry median and nearly three times higher than Target’s.
Investors also focused on Walmart’s gross margins for the quarter, which fell short of their expectations, even though the companny raised its fiscal year sales and profit forecasts. - Reuters
