Why Walmart Is Down Today

Walmart (NYSE: WMT) beat estimates for the quarter, but the retail giant warned of price hikes on the horizon because of tariffs.

Investors are heeding the caution, sending Walmart shares down 3% as of 10:30 a.m. ET.

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Too much for even Walmart to absorb

Walmart earned $0.61 per share on revenue of $165.6 billion in the quarter, topping Wall Street's $0.58 per share on $164 billion expectations and reporting revenue up 2.5% year over year. Global e-commerce sales were up 22% year over year, and membership income was up 15%.

But the company also indicated that macro pressures could create tougher times up ahead. CEO Doug McMillon said that tariffs have already led to price increases, and said more of the cost will be passed on to consumers.

"We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure, given the reality of narrow retail margins," McMillon said.

Is Walmart a buy?

The good news is that Walmart, for now at least, is keeping its full-year guidance intact. The bad news is neither the company nor investors have any idea of what lies ahead.

As McMillon noted, the tariffs have been reduced in recent days, but just as the initial increases are now only beginning to hit retail shelves, any reduction will take time to work through the system. And the reduced rates, at least for now, are still substantially higher than import levies just a few months ago.

The risk for Walmart is that the higher prices will cause consumers to buy less and potentially drag the economy into a recession.

Walmart is a best-in-class retailer with the wherewithal to survive a downturn, but macro conditions could weigh on results in the quarters to come. Those interested in buying in now need to be focused on the long term, and be prepared for potential turbulence on the horizon.

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Lou Whiteman has positions in Walmart. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.