Walmart cuts prices for more than 7,000 items, warns it will fight back against brands proposing hikes

During the retailer’s second quarter earnings call last week, executives suggested they are “fighting back” against proposed price increases from branded suppliers and advocating for manufacturers to invest more in lower prices.

“I am hoping that what we see from our branded suppliers is an investment in price, and we are seeing that from some of them and not others. We have less upward pressure, but there are some that are still talking about cost increases and we are fighting back on that aggressively, because we think prices need to come down,” CEO Doug McMillon told investors Aug. 15.

The retailer’s potentially unpopular, but influential position, comes at a time when consumers are feeling pinched by higher prices and responding positively to Walmart’s value proposition.

“We are focused on providing everyday low prices for our customers and members, and we are managing US pricing aligned to competitive price gaps. Customers and members are responding to our value proposition. We are seeing continued sales growth, share gains and higher gross margins. We are demonstrating that we are able to grow our business on a sustained basis in the absence of price inflation,” John David Rainey, EVP and chief financial officer for Walmart, said during the earnings call.

With its lowered prices, Walmart saw “higher engagement across income cohorts,” led by “upper income households … even while we grow sales and share among middle and lower income households,” he added.

The retailer is also seeing more customer uptake its in its private label food brand, Better Goods, he said.

Walmart reports strong growth in revenue, operating income​

This strategy is paying off for the retailer, which reported solid results in Q2, driven by its adaptation to consumer preferences for value and quality and overall improved financial performance across ecommerce and Sam’s Club during a challenging economic environment.

Key highlights from the quarter included consolidated revenue at $169.3 billion, up 4.8% from the same quarter last year, in addition to a boost in total profit by 43 basis points, led by Walmart US and Walmart International, highlighting an efficiency in managing product costs.

Consolidated operating income, grew 8.5% to $600 million, indicating the company is generating more profit after accounting for its operating costs. Adjusted operating income grew 7.2% due to higher gross margins and an increase in membership income coupled with reduced ecommerce losses, according to the company.

Global ecommerce sales grew 21%, led by convenient fulfillment options in store-pickup, delivery and marketplace.

Global advertising also grew by 26%, including a 30% growth for Walmart Connect in the US, indicating increased interest from advertisers.

Sam’s Club US delivered a strong performance in Q2 with growth across multiple areas.

According to Walmart, the warehouse club achieved strong comparable sales in Q2, which was driven by increased sales in the food and health and wellness categories, and a rise in transactions and unit volumes, showing that shoppers are visiting more frequently and buying more items per visit. Sam’s Club US also delivered an improved gross profit rate, which increased by 22 basis points, highlighting an efficiency in pricing and cost management strategies. However, inventory levels were slightly down by 1.7%, although the company reported it maintained in-stock levels.

E-commerce sales for Sam’s Club US also increased 22% along with a growth in membership income by 14.4% with a record number of total members and Plus memberships at the end of the quarter. The growth in membership highlights customers finding value in Sam’s Club’s program.

Walmart’s Q3 expectations and FY25 outlook​

In Q3, the retailer anticipates net sales will increase between 3.25% to 4.25%, while operating income is projected to grow between 3% and 4.5%, based on constant currency.

The company is also raising its expectations for FY25. Net sales are projected to grow between 3.75% and 4.75% (compared to previous guidance of 3% to 4%), and a projected growth between 6.5% and 8% (compared to previous projections of 4% to 6%) in adjusted operating income, also based on constant currency.