After Biggest One-Day Decline Since 2022, Is Walmart Stock a Buy?

Shares of Walmart (NASDAQ: WMT) saw their worst one-day drop since 2022 after the retailer said it would use its approximately $2.9 billion in tariff refunds to lower prices for consumers, which would negatively impact its third-quarter results.

The company indicated that consumers appear to be stretched due to high gasoline prices, but that overall they remain resilient and keep spending, helped by wage growth.

Following its dip, the stock is now down about 7% on the year, as of Aug. 20. Let's dive into the retail stock's quarterly results to see if the pullback is a buying opportunity or if investors should stay away.

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Solid results but soft outlook

Walmart has always been known as the low-cost leader, so its decision to push down prices in response to the tariff refund isn't completely surprising. However, lowering costs will impact its sales growth and operating margins in the near term.

For Q3, Walmart forecasted that its sales would rise between 3% and 3.75%, which was well below the nearly 6% consensus. Its adjusted EPS guidance of $0.62 to $0.64, meanwhile, fell short of the $0.68 that analysts were expecting.

Despite the disappointing Q3 guidance, the company did raise its full-year outlook. It now anticipates adjusted EPS of between $2.80 and $2.87 on sales growth of 4% to 5%. That's up from a prior projection for EPS of $2.75 to $2.85 on revenue growth of 3.5% to 4.5%. Ultimately, the retailer expects its decision to lower prices to help accelerate sales and lead to market share gains.

Turning to Walmart's fiscal Q2 results, its revenue rose nearly 6% to $187.94 billion, topping the $186.77 billion consensus, as compiled by LSEG. Walmart U.S. store sales rose 3.5% to $125.2 billion, while same-store sales increased by 2.6%. The number of transactions rose by 1.5%, while the average ticket climbed 1.1%. E-commerce sales, meanwhile, surged 24%. Excluding health and wellness, which is being impacted by industry regulations, same-store sales would have been 3.4%

Internationally, Walmart sales climbed nearly 13% to $35.2 billion, and were up nearly 8% in constant currencies. China led the way with nearly 21% constant currency growth. International e-commerce sales jumped 19%.

Sam's Club U.S., its warehouse store concept, saw sales (excluding fuel) increase by 4.5%. Same-store sales, excluding fuel, climbed 4.4%. Transactions rose 7%, while the average ticket fell 2.5%. E-commerce sales jumped 26%, while membership revenue rose 6% year over year.

Adjusted EPS climbed 19% to $0.81. That topped the $0.74 consensus.

Is the stock a buy on the dip?

Walmart is one of the world's great retailers, and the company has proven to be a solid grower in all types of economic conditions, which helps set it apart in the space. In recent years, the company has done a great job of bringing in more affluent customers, catering not just to their desire for low prices, but also goods like higher-quality meats and produce, and same-day delivery convenience. As such, even as its core lower income customers have shown some struggles, Walmart continued to prosper.

While the decision to invest its tariff refund in price cuts will impact short-term results, it once again should create strong loyalty among its customers. That's a pretty good long trade-off.

That said, the stock was pricey going into the earnings report, and it still isn't cheap after the sell-off, trading at a forward price-to-earnings (P/E) ratio of nearly 36 times current fiscal year estimates and nearly 32 times next year's fiscal estimates. I think Walmart remains a solid long-term holding and that it will eventually bounce back, but I much prefer the cheaper and faster-growing Amazon stock in the retail space.

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