Walmart’s Profits Could Be Crushed by Tariffs

Walmart Inc.’s (NYSE: WMT) revenue in the United States is huge, but its margins are small. That means any increase in expenses will push those margins down sharply. America’s largest retailer imports almost two-thirds of what it sells in the United States from China. Those imports face at least 20% tariffs under the latest White House trade plans.

According to Bloomberg, Walmart is squeezing its China-based suppliers to lower their prices to save Walmart’s U.S. profits. This is over an objection from the Chinese government. Nevertheless, Walmart has asked its China suppliers to cut prices by as much as 10% for each round of tariffs, the news service reports.

Walmart’s U.S. revenue in the most recent quarter was $123.5 billion, up 5.0%. Operating income was $6.5 billion, or 7.4% higher. That means its operating profit is only 5%. That margin is imperiled by price increases from Chinese suppliers.

Operating margins are among the key metrics of management. When earnings were announced, CEO Doug McMillon said, “We’ll stay focused on growth, improving operating margins, and strengthening ROI as we invest to serve our customers and members even better.”

Walmart’s guidance is also at risk. For the current fiscal year, it expects revenue to rise 3.0% to 4.0% and operating income to increase more at 3.5% to 5.5%.

A great deal is at risk for Walmart’s shareholders. The stock is up 48% in the past year to near $89 per share. The S&P 500 is only 7% higher over the same period. However, Walmart has given back large gains from earlier in the year. The stock traded at $102 in early February,

The jury is still out on the extent to which Walmart China suppliers will drop prices. If they do not, investors are in for a rough year in 2025.

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