Walmart, one of the world’s largest retail chains, recently experienced a significant drop in its stock price, marking its worst performance since May 2022. This decline followed the release of its latest earnings report, which raised concerns about slowing profit growth and potential tariff risks. However, former Walmart U.S. CEO Bill Simon believes this reaction from investors is an overreaction and sees the situation as a major opportunity for those looking to invest in the company.
Stock Price Drop and Investor Reactions
Walmart’s stock fell nearly 9% over the past week, with a sharp 6% drop occurring on the day the company announced its quarterly earnings. This sudden decline surprised many, including Bill Simon, who described it as “bizarre.” He noted that Walmart met its earnings expectations and even exceeded them in some areas, making the market’s negative reaction unexpected.
Simon expressed confusion over the way Wall Street responded, suggesting that investors may not have fully understood the company’s financial outlook. He pointed out that, in most cases, when a company performs well and meets expectations, the stock price tends to rise. However, in this instance, Walmart’s stock went in the opposite direction, which he found unusual.
Concerns Over Tariffs and Their Impact on Walmart
One of the reasons for the stock decline appears to be concerns about tariffs, especially potential new trade policies involving Canada and Mexico. Many investors fear that increased tariffs could hurt Walmart’s ability to maintain its low prices, which are a key factor in its success.
However, Simon does not believe that these tariffs will have a major impact on Walmart’s operations. He explained that consumer choices ultimately determine whether tariffs have an effect. For example, if tariffs are placed on products like avocados from Mexico, shoppers may choose to buy alternative products like salsa or queso, which are not affected by tariffs.
Simon also pointed out that Walmart and other major retailers, such as Costco, Target, and Amazon, have strong supply chain networks that allow them to adjust to new trade policies. If necessary, these companies can source products from different countries or develop their own private-label alternatives to avoid tariff-related price increases.
Walmart’s Ability to Adapt
Despite the current stock decline, Simon remains confident in Walmart’s ability to adapt to changing economic conditions. He highlighted the company’s flexibility in sourcing products from different regions and its experience in handling supply chain disruptions. Walmart has successfully navigated previous economic challenges, and he believes it will do so again.
Additionally, Simon noted that Walmart’s business model gives it an advantage over smaller retailers that may struggle to cope with potential tariff changes. Larger companies like Walmart have the resources and expertise to adjust their operations, ensuring that they remain competitive even in uncertain economic times.
Changing Consumer Behavior
Another key point Simon made was about changing consumer behavior. In the past, higher-income consumers generally preferred shopping at high-end retailers rather than discount stores like Walmart. However, economic conditions have changed, and many wealthier shoppers are now turning to Walmart for their everyday needs.
This shift began during economic downturns when people sought ways to save money. Over time, many consumers became accustomed to shopping at Walmart and continued to do so even after economic conditions improved. Simon believes that this trend may become permanent, with higher-income shoppers continuing to choose Walmart for its affordability and convenience.
He explained that if investors liked Walmart’s business strategy before the earnings report, they should be even more interested in it now because the stock has become more affordable. In other words, the recent drop in stock price presents a good opportunity for investors to buy shares at a lower cost.
Historical Trends and Market Reactions
Simon compared the current situation to previous trends in the retail industry. Last year, he warned that Walmart’s stock was rising too quickly due to increased spending by affluent consumers. He suggested that, based on historical patterns, spending habits would eventually shift, causing the company’s stock to level out.
However, given the current global economic and geopolitical landscape, Simon now believes that the usual market patterns may not apply. He suggested that some of the changes in consumer behavior seen in recent years, such as the growing preference for discount retailers, may be long-lasting rather than temporary.
Long-Term Growth Potential
While Walmart’s stock has declined by 10% from its all-time high on February 14, it remains significantly higher than it was a year ago. Over the past 52 weeks, Walmart’s stock has increased by about 64%, demonstrating its long-term growth potential despite short-term fluctuations.
Simon remains optimistic about Walmart’s future and believes that the company is well-positioned to handle economic uncertainties. He emphasized that Walmart has consistently adapted to changing market conditions and will likely continue to do so in the future.
