Walmart profit growth slows as Iran war pushes up fuel costs

Walmart reported a slowdown in profit growth in the first quarter as the retail behemoth absorbed the sharp rise in fuel costs caused by the war in Iran.

Operating income rose 5 per cent to $7.5bn in the three months to the end of April compared with last year, falling short of analyst estimates, but in line with previous guidance.

Revenue increased 7.3 per cent to $177.8bn, about $3bn more than estimates compiled by Visible Alpha. The results meant that Walmart fell short of its goal of increasing operating profits at a faster rate than sales.

Since the US and Israel launched a war in Iran at the end of February, the price of diesel has increased by nearly 50 per cent. Petrol prices have also risen, putting pressure on lower-income consumers who are core customers for Walmart. 

Walmart has recently been able to boost profitability with higher-margin businesses such as memberships and advertising.

Strong growth in those areas was offset by the increase in fuel costs, which shaved 2.5 percentage points off its rate of operating profit growth, the Arkansas-based company said on Thursday. Walmart said it absorbed higher fuel costs to keep prices low for customers. 

The US retailer operates one of the country’s largest private fleets to serve its more than 5,200 stores nationwide. It has more stores overseas in countries including Mexico, Canada and China. 

Analysts say the company has attracted more business from households seeking lower prices, while Walmart’s ecommerce business has grown with wider offerings and faster deliveries. 

Consumers continued to flock to Walmart in the first quarter, with same-store sales in the US rising 4.1 per cent, beating estimates. 

Walmart upheld previous guidance for net sales to rise between 3.5 and 4.5 per cent this fiscal year, and for its adjusted operating income to grow by 6 and 8 per cent, adjusted for exchange rates. 

The company also forecast adjusted operating income would rise between 7 and 10 per cent in the second quarter, with net sales growing by 4 to 5 per cent.