Walmart's Worst Sales Growth in 6 Years Signals Consumer Crunch

$WMT dropped more than 8% after reporting quarterly same-store sales growth that left Wall Street cold. Revenue beat estimates, the full-year earnings outlook was raised, and e-commerce now accounts for nearly a quarter of all sales. Sounds fine, right? Except the comp sales number was the slowest in six years, and the market did what markets do when they don't like the vibe: it sold first and asked questions later.

Bloomberg's Stock Movers coverage flagged a sneaky culprit in the miss: lower drug prices from government pharma negotiations are actually dragging on Walmart's reported revenue. That's a weird structural headwind that has nothing to do with foot traffic. But UBS analyst Michael Lasser added a less cheerful datapoint: there are now a growing number of signals over the past four to eight weeks that low-income consumers are feeling serious pressure from elevated gas prices and the broader cost-of-living squeeze.

Here's the plot twist though. Bloomberg's Money Minute and CNBC's consumer spending segment both note that lower-income households were actually the primary drivers of spending growth in July. Wage growth for that cohort is at its strongest pace since March 2023. So the consumer isn't dead. They're just trading down aggressively, swapping name brands for store brands and skipping the extras. Walmart, ironically, should be a beneficiary of that trade-down behavior. The fact that even Walmart is wobbling tells you the pressure is real.

The macro backdrop isn't helping. $AAP (Advanced Auto Parts) cratered 23% year to date as weak DIY spending and a strategic pivot to regional fulfillment hubs spooked investors. The average age of US automobiles just hit a record high, which sounds bullish for auto parts but apparently the consumer is stretching out oil changes rather than paying for repairs. Meanwhile Coty fell on a weak forecast, and JD Sports cut its profit outlook from £850 million to £800 million blaming cost-of-living pressure on its young customer base globally. The consumer stress narrative is not confined to the US.

The one group that seems fine? Higher-income households earning over $100,000 annually, who are actually gaining share at Walmart. When rich people start shopping at Walmart and Walmart is still missing estimates, the math on consumer health gets uncomfortable fast.

Retail therapy is officially on a budget, and Walmart just handed us the receipt.