Is Walmart Stock Still a Safe Haven as Its Price Sinks With Consumer Pressures Intensifying?

Walmart (NASDAQ: WMT) stock has long been a safe haven for investors during periods of consumer weakness and recessions, with a history of outperformance during these periods. However, the stock sank following the release of the company's first-quarter results, as the retail giant warned that, because U.S. consumers are under pressure from high gasoline prices, it may have to raise prices to offset the impact of higher fuel costs on its own margins. Despite the decline, the stock is still up around 9% on the year as of this writing and about 25% over the past year.

Let's dive into its results and prospects to see if this dip is a buying opportunity during these uncertain times.

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Solid sales growth despite a strained consumer

Despite a strained consumer environment, Walmart still delivered strong growth and maintained its guidance. However, given the stock's high valuation, investors were clearly hoping for more.

In the quarter, revenue rose 7.3% year over year to $177.75 billion, surpassing the $174.98 billion consensus, as compiled by LSEG. Adjusted earnings per share (EPS) rose 8% to $0.66, in line with analyst expectations. Walmart U.S. store sales climbed by 4.5% to $117.2 billion, while same-store sales rose by 4.1%. The number of transactions increased by 3%, while the average ticket climbed 1.1%. E-commerce sales, meanwhile, jumped 26%.

Walmart once again called out its Sparky agentic commerce tool, saying customers using the artificial intelligence (AI) agent are spending 35% more than nonusers, while weekly active users have doubled. The company also saw a 36% jump in U.S. ad revenue in the quarter.

Walmart said it is seeing a clear distinction in spending between its higher- and lower-income customers. Meanwhile, the gap could widen in Q2 as the positive impact of tax returns fades.

Internationally, sales surged 18% to $35.1 billion, up 10.1% in constant currencies. International e-commerce sales climbed by 27%, and international ad revenue grew 32%.

Sam's Club U.S., its warehouse store concept, saw sales (excluding fuel) increase by 6.1% to $23.4 billion. Same-store sales, excluding fuel, rose by 3.9%. Transactions rose 6.2%, while the average ticket fell by 2.2%. E-commerce sales jumped 23%, while membership fees rose 5.6% year over year.

Looking ahead, Walmart projected its fiscal Q2 sales to rise between 4% and 5%, with adjusted EPS of between $0.72 and $0.74. For the full year, it maintained its guidance for revenue growth of 3.5% to 4.5% and adjusted EPS of between $2.75 and $2.85. However, analysts were expecting the company to raise its guidance, with the consensus estimate of $2.91 above Walmart's forecast.

Should investors buy the dip?

While traditionally considered a defensive name, Walmart is not completely immune to a tough consumer environment. Meanwhile, with a forward price-to-earnings (P/E) ratio of 42, the stock is downright pricey. There are also many better values in the retail space, like Amazon, which trades at a 31 times forward P/E, and pet e-commerce player Chewy, which trades at just a 12.5 times multiple. Both companies are seeing solid growth and strong operating leverage.

No matter how well Walmart holds up in a potential recession, the upside is just too limited at current valuation levels. The trade-down effect is real, but it has its limits. As such, I'd stay on the sidelines.

Geoffrey Seiler has positions in Amazon and Chewy. The Motley Fool has positions in and recommends Amazon, Chewy, and Walmart. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.