Walmart shares were trading roughly flat in pre-market activity shortly before the company's earnings call, but dropped by roughly 5.7% afterward as investors weighed the details of its second-quarter report.

The US retailer reported earnings per share of $0.81, beating expectations of $0.75, and also raised its annual targets slightly for the first time this year. However, the details were less encouraging: comparable sales, i.e. same-store sales, fell well short of estimates, rising only 2.6% in Q2 against market expectations of around 3.7% to 3.8%.

That metric is a key signal that consumers are pulling back on spending in the wake of rising gas prices, among other factors. Walmart's earnings call is often viewed as a bellwether for the US consumer because it captures the spending patterns of price-sensitive shoppers across groceries and general merchandise, making the same-store sales line especially important for gauging household budgets. As a result, the comparable sales miss carries added weight even with the earnings beat and a modest increase to full-year guidance.

Looking at other aspects of the earnings release, Walmart now sees net sales growing between 4% and 5% in fiscal year 2027, compared with its earlier target of between 3.5% and 4.5%. The retailer also now expects annual adjusted EPS to come in between $2.80 and $2.87, up from the prior target of $2.75 to $2.85.

Drilling into the drag on comparable sales, it stems mostly from the health and wellness category, which fell to low single-digit growth as a result of a 900 basis-point impact from the maximum fair price implementation under the Inflation Reduction Act. Excluding that effect, Walmart said its comparable sales actually grew by 3.4% — still a miss versus estimates.

Source: ForexLive