Walmart issues worse-than-expected outlook as high gas prices hit shoppers

Walmart issued a worse-than-expected financial outlook on Thursday as it reported fiscal first-quarter results, raising questions about the health of the U.S. consumer as high gas prices strain shopper budgets.

The mega retailer stood by its fiscal 2027 outlook, which disappointed investors last quarter when it was issued. The retailer said it's expecting adjusted earnings per share to be between $2.75 and $2.85, lower than expectations of $2.91, according to LSEG. Walmart said it anticipates net sales will rise between 3.5% and 4.5% for the year.

Walmart also issued its outlook for its current quarter, which came in light of expectations, as well. It expects adjusted earnings per share will be between 72 cents and 74 cents, missing expectations of 75 cents. Walmart anticipates net sales will climb 4% to 5% for the quarter.

Walmart's weaker-than-expected outlook comes as the largest U.S. retailer and its peers post relatively strong sales for the first quarter.

So far this earnings season, major companies have largely said consumer spending has held up in the face of higher gas prices. But that resilience also came amid higher tax returns, which Target said on Wednesday may have fueled some of the growth it saw during the first quarter.

In an interview with CNBC, Walmart finance chief John David Rainey also said consumers may feel more strain as the effect of tax returns goes away in the second quarter.

"I think higher tax returns muted some of the pressure related to higher fuel prices and as we're in a period of time right now where those tax refunds are largely not coming in, I think consumers are going to feel more of that pressure from higher fuel prices," said Rainey. "It's something that we're keeping a close eye on, but that expectation is built into our guidance for the second quarter."

He said that Walmart's second-quarter guidance for operating income is the best the retailer's given in maybe a decade and a half, and came as the retailer saw a $175 million headwind from higher fuel prices.

"It'll probably be larger than that in the second quarter if fuel prices stay where they are, so we're absorbing those prices and still maintaining our guidance, and I feel really good about that," said Rainey.

During Walmart's fiscal first quarter, the retailer beat on the top line but issued in line results on the bottom. It was just the third time in 16 quarters that Walmart did not beat quarterly earnings expectations.

Here's how America's largest retailer performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

Walmart shares slid about 2% in premarket trading.

The company's reported net income for the three-month period that ended April 30 was $5.33 billion, or 67 cents per share, compared with $4.49 billion, or 56 cents per share, a year earlier. Excluding one-time items related to business reorganization charges and other non-recurring items, Walmart posted adjusted earnings per share of 66 cents.

Sales rose to $177.8 billion, up 7% from $163.98 billion a year earlier.

Walmart's results and annual outlook comes as questions swirl about how higher prices are impacting customer wallets.

In the three months since Walmart last reported earnings, there's a new conflict in the Middle East, gas prices have soared and consumer sentiment has plummeted, falling to a fresh record low in May. The flurry of bad news comes on top of years of sticky inflation, higher interest rates and a global trade war that's pushed prices even higher.

Walmart has long been among the best positioned to weather just about any economic storm. Long a value play among lower-income shoppers, Walmart in recent years has been winning over more high-income consumers, which has helped fuel its growth and insulate it from economic shocks that have hit lower earners more acutely.

During the quarter, demand at Walmart remained strong as more shoppers hunted for value. Global e-commerce sales, a key growth area for the company, climbed 26%, while its global advertising business jumped 37%. Both of those high-margin revenue streams can help Walmart keep prices low in the face of rising costs.