It was an impressive third quarter for retail giant Walmart, with one caveat. President Donald Trump’s yawning trade war with China could crimp the retailer’s bottom line in 2019.
“Tariffs are not positive for the economy,” Walmart Chief Financial Officer Brett Biggs told Yahoo Finance on a media call Thursday. “Prices [for consumers] will go up.” Biggs said the company is looking at taking action should higher tariff rates go into effect in January.
The Trump administration enacted 10% tariffs on $200 billion worth of Chinese goods on Sept. 24. On Jan. 1, 2019, the rates will increase to 25%. Most retailers see their fourth quarters end in January. So for a global retailer such as Walmart, which sources a good number of products from China — and does business in the country — higher tariff rates could quickly hit profits.
Walmart shares dropped about 2% on Thursday’s session. While investors temporarily lock in on Walmart’s tariff exposure, they are ignoring a retailer with considerable momentum into the critical holiday shopping season.
The world’s largest retailer said Thursday that third-quarter earnings came in at $1.08 a share adjusted, beating analyst forecasts of $1.01. Total revenue clocked in at $124.89 billion versus forecasts for $125.55 billion. Walmart lifted its full-year U.S. same-store sales guidance to “at least” 3% from “about” 3% previously. Earnings are now seen in a range of $4.75 to $4.85 a share compared to $4.65 to $4.80.
Walmart saw strong sales gains at its two key U.S. businesses. Walmart’s U.S. same-store sales, a key retail industry metric, rose 3.4%. Sam’s Club, which tends to skew toward a higher income customer, notched a 3.2% same-store sales increase. The division’s e-commerce sales gained 32%.
The momentum suggests that Walmart could navigate higher tariffs better than most despite Wall Street fears.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi