Walmart Just Posted Its Biggest One-Day Drop Since 2022. History Says What Its Big Drops Have Been Worth.

Walmart (NASDAQ:WMT) reported revenue up 5.9% to $187.9 billion for its fiscal second quarter (the period ended July 31) on Thursday, Aug. 20, and raised its full-year outlook. The stock fell 9.2% anyway, closing at $103.84, down from $114.30. It was Walmart's worst single session since May 2022.

The problem wasn't the quarter's totals. It was the growth rate underneath them. U.S. comparable sales rose 2.6%, and the deceleration is now hard to miss -- a year ago, this quarter's comp growth was 4.6%, and the fiscal first quarter's was 4.1%.

Thursday's drop was the fourth-largest of the past 15 years. And that rarity is useful, because the three bigger ones each come with a date and a documented aftermath.

Image source: Getty Images.

Behind the 9% drop

Set against the comp slowdown, most of the quarter looked strong. Global e-commerce sales grew 23% year over year, advertising grew 38%, and membership fee income rose 17%.

Profits looked strong too: Non-GAAP (adjusted) earnings per share came in at $0.81. Operating income rose 28.8% (17.4% adjusted and in constant currency). Both figures were lifted by tariff refunds, partly offset by the price cuts the company is funding with them.

Management raised its outlook on the strength of all this. The company now expects fiscal-year sales growth of 4% to 5% in constant currency, up from 3.5% to 4.5%, and adjusted earnings per share of $2.80 to $2.87.

But the comp line came with more than a slowdown. Pharmacy deflation tied to new drug-price regulation shaved about 125 basis points off U.S. comps. And the company expects just over $2 billion of incremental fuel costs this year.

Notably, transactions grew 1.5%, while the average ticket rose just 1.1%. Customers kept coming, and spent carefully once they arrived.

"But consumers are still spending, and real wage growth is keeping pace, and so they've been very resilient in this environment," chief financial officer John David Rainey told CNBC on Thursday.

Three drops, three modest recoveries

In the past 15 years, Walmart has had exactly three larger single-day declines.

On Oct. 14, 2015, the stock fell 10% after management warned profits would decline the following year. One year later, shares were up about 14%.

On Feb. 20, 2018, shares dropped 10.2% on a holiday quarter in which e-commerce growth slowed sharply and margins compressed. A year later, the stock had gained about 6% from its post-drop close, which still left it below where it had traded before the drop.

And on May 17, 2022, shares collapsed 11.4% after surging costs cut deep into quarterly profits. That is the drop Thursday's is being measured against. Twelve months later, shares stood about 14% above where the drop left them, which put them just back above where they'd traded the day before it.

The pattern is consistent, and consistently modest. Buyers of each drop were up 6% to 14% a year later. But measured from the day before each drop, the stock had only just clawed back to even in 2015 and 2022, and it was still lower a year after 2018.

However, one nearer episode cuts against even that modest pattern. This past May 21, Walmart fell 7.3% after its fiscal first-quarter report. Three months on, shares still sit around 14% below that day's close of about $121 -- and they were below that mark even before Thursday's drop.

What's different this time

There's another difference between Thursday and the three earlier drops, and it may matter more than the pattern. The three big drops of 2015, 2018, and 2022 all arrived with bad profit news attached -- a warning in 2015, a margin squeeze in 2018, a cost surge in 2022. Thursday's arrived with a raised full-year outlook but also third-quarter guidance that calls for slower growth still, with sales up 3% to 3.75%. Investors weren't reacting to a profit shock -- they were marking down expected revenue growth.

And the price still assumes quite a lot. At $103.84, the stock trades at about 37 times expected earnings, using the middle of its freshly raised guidance. Even after Thursday, shares sit about 9% above their 52-week low and 23% below their high. This is a premium-priced stock that became slightly less premium.

The record's lesson, then, is narrower than it first appears. Walmart's worst days haven't been disasters. Buyers of each drop were ahead within a year, and the business kept compounding underneath. But the gains that followed were ordinary, and this year's smaller May drop still hasn't been recovered. I'd argue the record mostly cautions against panic. It probably says little about bargains. At about 37 times the earnings management just guided to, with comps decelerating, the price still treats the slowdown as temporary.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.