Walmart Is Starting to Feel the Effects of Tariffs. Is Its Stock in Trouble?

Key Points

• In its fiscal Q2, Walmart missed earnings expectations for the first time in more than three years.

• Its CEO hinted that there could be more noticeable price hikes coming in upcoming quarters.

• The stock's high valuation makes it vulnerable to a correction if the business underperforms due to tariffs.

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Walmart (NYSE: WMT) has made for a fairly resilient stock to own over the years. The big-box retailer often acts as a one-stop shop for customers. Whether they're shopping for birthday presents, groceries, clothes, or prescriptions -- or all of the above -- it often makes sense for customers to simply go to their local Walmart to get everything.

As prices have been rising across the economy, Walmart's diverse offerings have helped it to fare much better than rival Target, which depends more heavily on discretionary purchases. And Walmart, being a low-cost leader, has been able to keep its prices relatively steady, even as President Donald Trump's tariffs came into effect.

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On the company's latest earnings call, however, management seemed to suggest that Walmart could soon be increasing more prices. Considering that the company underperformed expectations in its latest quarter, those price hikes may set up the business for more challenging periods ahead. Given that its stock price is at an all-time high, that could spell trouble for Walmart shareholders.

Image source: Getty Images.

Manageable tariff impact, for now

Walmart reported its fiscal 2026 second-quarter earnings last month, and its numbers were a little disappointing. While revenue totaled $177.4 billion for the period, which ended July 31, and came in better than analysts' consensus expectations of $176.2 billion, its adjusted earnings per share of $0.68 undershot Wall Street's projections of $0.74. It was the first time the company fell short of bottom-line expectations in more than three years.

What is more concerning, however, is that this miss happened during a period when the company was still saying that the impact of tariffs on customers had been "somewhat muted." Rising prices haven't played a big role -- yet. CEO Doug McMillon admits Walmart's costs are getting higher, however.

"As we replenish inventory at post-tariff price levels, we've continued to see our costs increase each week, which we expect will continue into the third and fourth quarters," he said. This could lead to the retailer engaging in more price hikes, especially as it looks to protect its margins.

Slowing growth and an inflated valuation could make the stock ripe for a correction

Walmart's stock has been trading at a relatively high valuation for a while now. But if investors start to see causes for concern about its underlying business, such as slowing growth, U.S. consumers cutting back on spending, or worsening earnings numbers, that could put some downward pressure on the stock price. In its fiscal Q2, the company's sales rose by around 5% year over year, but its operating income declined by more than 8% to $7.3 billion.

With the stock trading at a premium price-to-earnings multiple of 38, investors' expectations will be high. (The broad S&P 500 index trades at an average earnings multiple of just 25.) Walmart's share price has nearly doubled since 2024 as more investors have been pivoting to safe-haven stocks amid worrisome macroeconomic conditions. But if the company starts to show signs that it's struggling, it may only be a matter of time before the stock gives back some of those impressive gains.

Walmart is still a good buy for the long term, but investors should brace for headwinds

If you're investing in Walmart for the long haul (e.g., five-plus years), then the stock could still make for an excellent investment. The company has solid fundamentals and promising growth opportunities in e-commerce and in advertising after acquiring TV-maker Vizio last year.

But in the short term, I wouldn't be surprised to see the retail stock struggle, as the CEO did hint that there could be more price hikes coming. That could lead to its customers cutting back even further on discretionary spending, or possibly turning to other stores, including dollar stores, in search of cost-saving opportunities. Either way, there could be some headwinds coming for Walmart's business, which could weigh on the stock in the months ahead.

Walmart remains a solid long-term investment, but in the near term, it could be a bumpy ride for investors.

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