Walmart absorbed virtually all of the surge in fuel costs in its most recent quarter rather than passing them on to shoppers, taking a direct hit to profits while keeping prices on store shelves largely stable — a dynamic that challenges the conventional wisdom that an energy shock inevitably translates into broader consumer price increases.
The world’s largest retailer said higher fuel costs in its distribution and fulfillment network knocked 250 basis points off operating income in the first quarter ended May 1, a headwind of roughly $175 million. Yet prices at Walmart stores rose just 1.2 percent during the period, and the number of discounts the company offered climbed 20 percent from a year earlier.
“It’s tough on very short notice to be able to navigate a cost headwind like that,” said John David Rainey, Walmart’s chief financial officer. The company expects the fuel headwind to be “equal or larger” in the current quarter.
The results put Walmart at the center of a critical question for the U.S. economy: whether surging gas prices, driven by the ongoing conflict in the Middle East, will feed through into the broad consumer price increases that have dogged the economy in recent years, or whether retailers will swallow the costs to protect customer traffic and market share.
So far, Walmart’s answer is the latter. By holding prices down and absorbing the fuel costs internally, the retailer is acting as a firebreak in the chain that normally runs from energy markets to consumer inflation. The pattern matters because Walmart, with roughly $177 billion in quarterly revenue and 280 million weekly customer visits worldwide, is a significant enough price-setter that its decisions ripple through the retail economy.
There is an irony embedded in Walmart’s position. The same gas prices that are squeezing its margins may be driving customers through its doors. As the Wall Street Journal reported, Walmart said rising fuel prices could draw more cash-strapped shoppers seeking value, even as those same prices weigh on its own transportation costs. “The headline consumer is reasonably healthy,” Rainey told the Journal, “but when you look underneath, the pressure is uneven.”
The consumer pain Walmart foresees in the second quarter reflects this distinction. Shoppers will feel more financial pressure not because Walmart is raising prices, but because gasoline is consuming a larger share of household budgets. At Walmart’s own gas stations, customers filled up with an average of less than 10 gallons per trip in the quarter — the first time that figure has fallen below that threshold since 2022. Rainey called it “an indication of stress.”
The national average for regular gasoline now stands at $4.56 a gallon, up from $3.18 a year ago, according to AAA.
The stress, however, is unevenly distributed. Higher-income consumers are “spending with confidence in many categories,” Rainey said, while lower-income shoppers are “more budget-conscious, trying to navigate certain financial distress.” The divergence is showing up in Walmart’s transaction data: customer visits rose 3 percent in the quarter while average spending per trip climbed just 1.1 percent, suggesting more people are coming through the door but buying more carefully once inside.
That trade-down dynamic is familiar territory for Walmart, which has historically gained market share during periods of economic stress as consumers hunt for value. U.S. comparable sales rose 4.1 percent excluding fuel, slightly ahead of Wall Street expectations. Net income grew nearly 19 percent to $5.33 billion.
Walmart’s forward guidance came in below analyst expectations on both the top and bottom lines. For the full year, the company projected adjusted earnings per share of $2.75 to $2.85, short of the $2.91 analysts had forecast, while anticipating net sales growth of 3.5 percent to 4.5 percent. For the current quarter, Walmart projected adjusted earnings per share of 72 to 74 cents, below the 75 cents Wall Street had expected, with net sales growth of 4 percent to 5 percent.
Despite the guidance miss, Walmart’s maintained full-year outlook signals that management believes it can continue absorbing elevated fuel costs without fundamentally altering its financial trajectory.
Shares fell about 7 percent in Thursday trading. Prior to the quarterly report, Walmart’s shares had been up about 17 percent this year.
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