In a strategic shift that highlights the retail giant’s resilience, Walmart is navigating tariff challenges with a measured approach to price increases while maintaining strong financial performance. The company recently announced quarterly earnings that exceeded expectations, even as it prepares for selective price hikes due to tariff pressures.

Tariff Strategy and Financial Performance

Walmart delivered a quarterly earnings beat and maintained its full-year forecast despite announcing impending price increases on certain products, including toys and bananas. These price adjustments could begin as early as next week, according to company statements.

“They’ll probably raise prices episodically on certain items,” explained Bill Simon, former Walmart U.S. CEO, during an appearance on CNBC’s “Fast Money.” Simon, who currently serves on Darden’s board and as chairman of Hanesbrands, noted that Walmart’s financial position gives it considerable flexibility in managing tariff impacts.

“If you look down deep and dig into the details of their earnings release today, this quarter they grew their gross profit margin in the U.S. business 25 basis points. So they’re expanding their margin,” Simon pointed out. He also highlighted that general merchandise categories remained “flattish” due to “mid-single digit price deflation,” which provides Walmart room to absorb tariff pressures.

Consumer Outlook and Economic Factors

Despite concerns about inflation and tariffs, Simon expressed optimism about the American consumer’s resilience. “The middle of the economy is very job employment dependent and very gas price dependent. And both of those numbers keep coming back pretty good,” he said.

Simon cited near full employment and year-over-year decreases in gas prices as positive indicators. He also noted that housing costs, “which were a real catastrophe 24 months ago, have sort of peaked and started to head down,” contributing to relatively stable consumer sentiment.

However, Simon acknowledged that “doom and gloom” messaging about price increases and tariffs, including Walmart’s own announcements, could create consumer anxiety despite otherwise favorable economic conditions.

Competitive Positioning

When asked about retail competitors’ ability to weather tariff challenges, Simon identified clear differences in vulnerability. “Target has the disadvantage of having a much bigger general merchandise, non-food business,” he explained, noting that non-food categories typically have higher import dependency.

While retailers have worked to mitigate their China exposure since the first round of tariffs, many still face significant risks from imports from countries like Vietnam. Simon predicted that “Target will have a much more difficult time mitigating and absorbing the tariff costs than say, Walmart or Costco that have a much bigger food business.”

Long-term Manufacturing Strategy

Simon framed the retail manufacturing challenge as “a math equation” involving input costs, labor costs, and transportation expenses. He noted that the economic calculus that drove manufacturing overseas is shifting as Asia develops a middle class with rising wages and as transportation costs increase.

“That equation is changing, and companies have to constantly look at that equation and find out where’s the best place to produce to get the product to the customer at the most efficient way,” Simon explained. “Closest to the point of consumption is the most efficient, and now it’s becoming increasingly the most cost [effective].”

When pressed to name which retailer is best positioned to handle tariff pressures, Simon was unequivocal: “Best to weather the tariffs would be Walmart.” However, he added an investment perspective: “From an investment standpoint, Target [is] so beat down and they’re such a good company they’re not going anywhere… if you could find a way to sort of stomach a long play on Target, you’ll do really well.”