Walmart recently faced its steepest single-day stock market plunge since May 2022, with shares falling 9.2%. This occurred despite the company reporting a 5.9% increase in fiscal second-quarter revenue, reaching $187.9 billion, and subsequently elevating its financial projections for the full year. The primary catalyst for this investor reaction was a noticeable slowdown in the growth of U.S. comparable sales, which registered a 2.6% rise compared to 4.1% in the prior quarter and 4.6% a year earlier. This event prompts a closer examination of Walmart's past significant stock corrections and their subsequent market performance to contextualize the current situation.
During the fiscal second quarter, which concluded on July 31, Walmart's financial performance presented a mixed picture. While overall revenue climbed, the deceleration in U.S. comparable sales, a key metric for retail health, overshadowed other positive developments. Global e-commerce sales demonstrated robust growth at 23% year-over-year, advertising revenue surged by 38%, and income from membership fees increased by 17%. Furthermore, the company's non-GAAP adjusted earnings per share reached $0.81, and operating income saw a significant rise of 28.8%, or 17.4% when adjusted for constant currency. These strong profit figures were partly boosted by tariff refunds, though partially offset by price reductions implemented by the company. Despite these favorable financial indicators, the market's focus remained on the cooling comparable sales growth, suggesting investor apprehension about future domestic market performance.
The company's management, buoyed by the quarter's overall strength, revised its fiscal year sales growth forecast upwards to 4% to 5% in constant currency, an increase from the previous range of 3.5% to 4.5%, and adjusted earnings per share were projected to be between $2.80 and $2.87. However, the comparable sales line was impacted by external factors such as pharmacy deflation linked to new drug-price regulations, which trimmed approximately 125 basis points off U.S. comps. Additionally, Walmart anticipates over $2 billion in incremental fuel costs for the year. Customer behavior also reflected a cautious approach, with transaction volume growing by 1.5% while the average ticket size increased by a mere 1.1%. This indicates that while customers continued to frequent Walmart, their spending habits were more restrained. According to CFO John David Rainey, consumers remain resilient due to consistent spending and real wage growth.
Historically, Walmart has experienced three larger single-day stock declines over the past 15 years. On October 14, 2015, the stock fell 10% after a profit warning, yet rebounded about 14% a year later. February 20, 2018, saw a 10.2% drop due to slowing e-commerce growth and margin compression, followed by a 6% gain within a year, though still below its pre-drop value. The most recent significant downturn prior to the current one was on May 17, 2022, when shares collapsed 11.4% amid surging costs impacting profits. Twelve months later, the stock had recovered approximately 14%, reaching just above its pre-drop level. This consistent, albeit modest, recovery pattern suggests that while immediate reactions to negative news can be sharp, Walmart's stock often regains ground over the subsequent year. However, a more recent 7.3% drop in May of this year following a first-quarter report has yet to fully recover, indicating that not all declines follow the same recovery trajectory.
The recent stock market reaction differs from previous downturns primarily because it wasn't triggered by an unexpected profit shock, but rather by investor concerns over decelerating revenue growth projections. Despite Thursday's fall, Walmart's stock, trading at roughly 37 times expected earnings based on its revised guidance, still commands a premium valuation. This valuation, combined with the slowdown in comparable sales, implies that the market is still largely viewing the current deceleration as a temporary setback rather than a long-term trend. The historical pattern of modest recoveries after significant drops suggests that investors should exercise caution rather than panic, recognizing that while gains may follow, they are often not extraordinary. The record primarily serves as a reminder against irrational selling, yet offers limited assurance of exceptional bargains.
