Tariff Turmoil: Is Walmart's Stock Set to Slide?

Walmart (NYSE: WMT) easily beat Wall Street's first-quarter earnings estimates. But it didn't matter. The big story in the world's largest retailer's Q1 update was the impact of the Trump administration's tariffs. And that story wasn't great for investors or American consumers.

Walmart is usually viewed as a stock that's resilient during times of economic uncertainty. However, the tariff turmoil raises the question: Is Walmart's share price set to slide?

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Image source: Walmart.

Walmart's warning

Many investors celebrated the agreement between the U.S. and China to relax trade tensions at least temporarily. Walmart's executives expressed some relief as well in the company's Q1 earnings call. CEO C. Douglas McMillon thanked President Trump and Treasury Secretary Scott Bessent for lowering tariffs on Chinese imports.

Despite the improvement, though, 30% tariffs will remain in place on Chinese products. McMillon said that Walmart won't be able to absorb all the price increases resulting from the tariffs even at reduced levels.

CFO John David Rainey stated that Walmart thinks the tariffs are still "too high." He added that the prices for some products "are likely going to go up, and that's not good for consumers."

What hurts American consumers could also hurt Walmart. The really bad scenario is if the Trump administration puts the previous steep tariffs back into place. Rainey warned, "[I]f we see a restoration of dramatically high tariff levels, the impact on our financials could be significant and even jeopardize our ability to grow earnings year over year."

Chinese tariffs present the most significant challenge for Walmart, but they're not the only concern for the company. The retailer purchases products from countries around the world that now have tariffs levied on their products, notably including Canada, India, Mexico, and Vietnam. McMillon said in the Q1 earnings call, "The cost pressure from all the tariff-impacted markets started in late April, and it accelerated in May."

What can the giant retailer do?

More than two-thirds of products Walmart sells in the U.S. are made (or, in the case of some foods, grown) domestically. But while the company continues to increase the volume of products sourced in the U.S., it won't be able to reduce imports rapidly. So what can the giant retailer do to reduce the negative impact of the Trump administration's tariffs on its business?

McMillon noted that Walmart is working with suppliers to shift "from tariff-impacted components like aluminum to fiberglass, where there is no tariff." He added, "Our merchants, sourcing team, and suppliers are being creative."

Walmart is also prepared to pass along higher costs to consumers on some products. McMillon acknowledged, "[E]ven at the reduced levels, the higher tariffs will result in higher prices." Could this slow the company's sales growth? Perhaps.

However, Walmart will absorb some tariff-related price increases. McMillon thinks the retailer has some capacity to do so as a result of its diversification of profit streams. He said, "[W]e're positioned to manage the cost pressure from tariffs as well or better than anyone."

A two-part prediction

Is Walmart stock likely to tumble because of tariffs? My prediction is: both yes and no.

Short term, I suspect the negative impacts of tariffs could put pressure on Walmart's share price. Rainey was undoubtedly correct in stating, "[W]e're not fully immune from the financial impacts in the short term."

But McMillon expressed optimism in the Q1 call, saying, "We've been operating in challenging environments for years now, and we'll come through this one stronger than ever, just as we have before." Rainey noted, "We've seen during periods of economic uncertainty in the past, we tend to gain share and come out of the other side in an even stronger position. We expect this period to be no different."

I think they're both right. While Walmart's shares could be volatile over the short term as a result of the tariff-related uncertainty, it remains a solid pick for long-term investors, in my view.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.