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🦔Walmart stock fell 7% Thursday after the retailer issued a worse-than-expected outlook and warned that the US consumer is about to break. CFO John David Rainey said higher tax refunds masked the gas price pain in Q1, but with refunds gone in Q2, "consumers are going to feel more of that pressure." Walmart absorbed a $175 million fuel headwind last quarter and expects that figure to grow. Q2 EPS guidance came in at $0.72 to $0.74 versus the $0.75 expected. This is only the third time in 16 quarters that Walmart has missed bottom-line expectations.
My Take
Walmart is the cleanest read on US consumer health we have, and the company just told investors the consumer is starting to break. The Q1 results looked fine on the surface because tax refunds were doing the heavy lifting, and Rainey said the quiet part out loud when he flagged that the pressure shows up in Q2 once those refunds run out. The 7% stock drop says the market believes him.
The deeper signal is that Walmart has been targeting higher-income shoppers for two years specifically because the company saw lower-income consumers tapping out. Households over $100K have been the company's growth engine, and the weaker guidance suggests even those households are starting to pull back. Gas prices are now hitting the demographic Walmart depended on to insulate itself from consumer weakness, and 5.2% Treasury yields plus rising mortgage rates are working against household balance sheets at the same time. When the largest retailer in the country says the consumer is about to feel more pressure than it has in years, the stocks priced for a soft landing are the ones that should make you nervous.
Hedgie🤗
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