A former top executive at Walmart downplayed the discount chain’s “doom and gloom” warning this week over President Trump’s tariffs, saying business is strong enough to absorb the costs without hiking prices.
Bill Simon, who ran Walmart’s US business from 2010 to 2014, said the world’s largest retailer is well-equipped to face the trade war.
“If you look down deep and dig into the details of their earnings release today, you know this quarter they grew their gross profit margin in the US business 25 basis points. So, they’re expanding their margin,” Simon told CNBC’s “Fast Money” on Thursday, after Walmart reported its first-quarter earnings and warned of incoming price increases this month and June.
“They also reported their general merchandise categories were flattish because they had mid-single digit price deflation. So all that product that has the tariffs on it, they reported last quarter actually went down in price. That sort of gives them room in my view to manage any tariff impact that they would have,” Simon continued.
Simon argued that consumers are “fairly buoyant” and can likely handle tariff-related price increases anyway, nodding to a robust jobs market and lower gasoline prices, both important factors in gauging where the middle class stands.
But consumer sentiment in May plunged to its second-lowest reading ever as Americans fear President Trump’s hefty tariffs could reheat inflation or even trigger a recession.
Simon, who serves as Hanesbrands’ chairman and on the board of Darden Restaurants, which owns Olive Garden and LongHorn Steakhouse, said some of that concern likely comes from company executives who have argued the tariffs will hit earnings.
“All the doom and gloom we hear about price increases and tariffs like we heard from my friends at Walmart today, I think it scares them some,” he said.
Walmart has the right business model to withstand tariffs, while Target will have a much harder time, since it sells many more non-food products imported from other countries, he added.
Shares in Walmart fell 0.5% on Thursday after the retailer said it plans to increase prices this month as tariffed goods start to hit shelves, adding that the size and speed of the price hikes could be “unprecedented.”
It maintained its full-year guidance, but withheld its profit forecast for the current quarter, citing a dynamic environment.
While many other retailers reported a disappointing first quarter, Walmart enjoyed a sales boom as shoppers flocked to the chain’s discounts and deals.
Walmart shares jumped 2.3% by approximately 10:45 a.m. ET on Friday. The stock is up 9.6% so far this year.
