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Walmart (WMT -2.4%) is heading lower after reporting Q1 (Apr) results this morning. After an initial move higher, the stock pulled back during the call. The retail giant beat on EPS and revenue, but it had just guided on April 9, so that was pretty much expected. The disappointment came from WMT opting not to provide Q2 (Jul) EPS guidance given the tariff uncertainty. It did provide Q2 top line guidance of +3.5-4.5% CC and it reaffirmed FY26 guidance.

• Its Walmart US segment performed well with comps (ex fuel) up +4.5%, roughly similar to Q4's +4.6%, but down a bit from +5.3% in Q3. Comp growth was led by health & wellness and grocery; seasonal events were strong; grocery share gains continued. Comps reflects higher transaction counts and unit volumes as well as strong growth in eCommerce.
• Momentum in grocery sales continued in Q1 with a mid-single digit comp and ongoing share gains. Health & wellness comps increased high teens, reflecting higher prescription volumes and OTC sales, while general merchandise (GM) sales declined slightly with softness in electronics, home products and sporting goods.
• Sam's Club US comps (ex fuel) were even more impressive, coming in at +6.7%, similar to Q4's +6.8%. Comps were led by grocery and health & wellness as well as its fourth consecutive quarter of positive GM comps. WMT does not provide comps for its Walmart International segment, but sales declined 0.3% to $29.8 bln. The silver lining was that it grew +7.8% CC, led by China, Flipkart, and Walmex.
• Not surprisingly, tariffs were a huge topic on the call. WMT was grateful for recent progress made with China and WMT is hopeful that will lead to a longer-term agreement. The company said it will do its best to keep prices as low as possible. However, given the magnitude of the tariffs, even at the reduced levels announced this week, WMT will not be able to absorb all the pressure given the reality of narrow retail margins.
• To its credit, WMT said it won't let tariff-related cost pressure on GM items put pressure on food prices. However, some food categories, in particular, from Costa Rica, Peru and Colombia are at risk for price hikes, including bananas, avocados, coffee and roses. WMT said the cost pressure from the tariffs impacted markets starting in late April and accelerated in May, so it sounds like some price hikes are possible.

Overall, the Q1 results were solid, but we knew that already with its April 9 guidance. As a result and as we said in our preview, all eyes would be on the guidance. Unfortunately, WMT declined to provide EPS guidance given the tariff uncertainty. We think the comments on the call about tariffs are largely responsible for the decline today. Saying that tariff-related cost increases accelerated in May was worrisome. Basically, it sounds like WMT will need to raise some price increases in Q2, which is not great news for consumers.