Walmart Warns: Gas Prices to Squeeze Shoppers Next Quarter

Walmart Inc. delivered a mixed bag for investors on Thursday, beating first-quarter earnings estimates but issuing a weaker-than-expected outlook that sent a chill through the retail sector. The world's largest retailer warned that soaring gas prices are beginning to bite into consumer wallets, and that the worst may be yet to come.

A Tale of Two Quarters

For the fiscal first quarter ended April 30, Walmart reported revenue of $152.3 billion, above the $151.5 billion consensus estimate, according to Refinitiv. Adjusted earnings per share came in at $1.47, in line with expectations. Same-store sales in the U.S. rose 3.8%, driven by grocery and health & wellness. However, the rosy headline numbers masked a concerning trend: higher-income households are trading down to Walmart for essentials, while lower-income shoppers are pulling back on discretionary purchases.

Chief Financial Officer John David Rainey noted that the quarter was buoyed by an unusual factor: larger-than-expected tax refunds. “Tax refunds were up significantly year over year, and that provided a temporary cushion for consumers,” Rainey said in an interview. “As we look to the second quarter, that cushion is gone, and the impact of higher gas prices will be more pronounced.”

The Gas Price Effect

Gasoline prices have surged to record levels, with the national average topping $5 per gallon in many states. For Walmart’s core customer—households earning less than $50,000 a year—that translates into a meaningful reduction in disposable income. Rainey estimated that every 10-cent increase at the pump reduces Walmart’s same-store sales by about 0.1 percentage point. With gas prices up more than $1.50 from a year ago, the headwind is substantial.

The company now expects second-quarter adjusted EPS of $1.55 to $1.60, well below the $1.70 analysts had forecast. Full-year guidance was also trimmed, with Walmart now projecting EPS of $6.50 to $6.70, down from a prior range of $6.70 to $6.90. The stock fell 3% in after-hours trading following the announcement.

Broader Market Implications

Walmart’s cautious outlook is the latest sign that consumer spending, which has powered the economy through the pandemic, is starting to falter. The Conference Board’s consumer confidence index has fallen for three consecutive months, and retail sales data for April showed a surprise decline. “Walmart is the canary in the coal mine for the American consumer,” said Neil Saunders, managing director of GlobalData Retail. “If Walmart is worried, everyone should be worried.”

The warning also overshadowed a blockbuster week for tech earnings. Nvidia reported stellar results and announced an $80 billion share buyback, while SpaceX filed for what is expected to be the largest IPO in history. Yet the market’s focus quickly returned to the macro picture, with the S&P 500 ending a three-day losing streak but failing to hold gains after Walmart’s announcement.

Strategic Responses

Walmart is not standing still. The company is leaning into its price leadership, rolling out new promotions and expanding its private-label offerings to capture value-conscious shoppers. It is also investing in automation and supply chain efficiency to offset cost pressures. However, Rainey acknowledged that these moves can only do so much in the face of macro headwinds.

“We are managing what we can control,” he said. “But when customers have less money in their pockets because of gas prices, that shows up in our results.”

Key Takeaways

1. Walmart's Q1 results beat on revenue but met EPS estimates; Q2 guidance fell short of expectations.
2. Higher gas prices are expected to significantly impact consumer spending in the current quarter.
3. Tax refunds provided a temporary boost in Q1, but that benefit has faded.
4. Walmart lowered its full-year EPS guidance to $6.50–$6.70 from $6.70–$6.90.
5. The retailer's outlook signals broader consumer weakness, with potential ripple effects across the retail sector.

Sources:
CNBC - Walmart Issues Worse-Than-Expected Outlook Amid Gas Prices
CNBC - Thursday's Big Stock Stories