Shares of Wal-Mart (WMT.US) tumbled more than 9% on Thursday after the retail giant reported second-quarter US sales growth that fell short of market expectations, alongside a weaker-than-anticipated profit outlook for the third quarter. The results have sparked concerns among investors regarding the company's near-term growth trajectory. However, several Wall Street firms, including Jefferies, RBC Capital Markets, UBS, and Evercore ISI, remain constructive on the stock, suggesting that the slowdown is largely tied to specific business segments and broader macroeconomic factors rather than a shift in the company's market share momentum.
According to the earnings report, same-store sales for Wal-Mart's US operations rose 2.6% year-over-year, missing consensus estimates. In addition, the company's third-quarter profit guidance disappointed investors. During the earnings call, management indicated that it is proactively reducing prices on select merchandise to further expand market share, implying that near-term profitability could be pressured by these strategic price investments.
Jefferies analyst Corey Tarlowe noted that while US same-store sales grew just 2.6%, the figure would have been 3.4% when excluding the health and wellness segment. That particular category was negatively impacted by deflationary pressures tied to new regulations on maximum fair prices for pharmaceuticals, which dragged down overall sales growth. Jefferies believes that Wal-Mart's core operating trends remain solid, with continued transaction growth, market share gains across multiple categories, and strong performance in e-commerce, advertising, third-party marketplace, and membership businesses. As a result, the firm reiterated its "Buy" rating on the stock.
RBC Capital Markets analyst Steven Shemesh also maintained a positive stance. He pointed out that excluding tariff refund impacts, Wal-Mart's operating profit still grew by nearly 10%. While investors may question whether the company's valuation remains justified given the current pace of US sales growth, RBC argues that this largely reflects the broader macroeconomic environment rather than a slowdown in Wal-Mart's market share expansion. The firm contends that Wal-Mart retains a structural competitive advantage over other retailers, leaving a long runway for both revenue and profit growth.
UBS analyst Michael Lasser acknowledged that the earnings report may intensify the ongoing debate around Wal-Mart's valuation and growth prospects, but the firm remains positive on the name. Meanwhile, Evercore ISI reiterated its "Outperform" rating. Analyst Greg Melich highlighted that Wal-Mart's sales growth actually came in at the upper end of its previously provided guidance range, and the company raised its full-year sales growth forecast to between 4.0% and 5.0%. Evercore believes the current profit growth trajectory reflects Wal-Mart's deliberate price investments to capture market share, rather than any meaningful deterioration in consumer demand. In other words, the company is leveraging its scale and profitability to strengthen its competitive position through lower prices.
Despite the sustained optimism from multiple Wall Street institutions regarding Wal-Mart's long-term fundamentals, the disappointing US sales growth and weak third-quarter profit guidance continue to weigh on investor sentiment in the near term. Going forward, the market will be closely watching whether Wal-Mart's price reduction strategy can further drive traffic and market share gains, as well as the extent of the impact this strategy will have on its profit margins.