Continued Trade Down Behavior and Rapid Prescription Drug Sales Growth Evident in Walmart's 3Q Results
Remains one of the biggest winners in retail
Two topics on which I’ve recently written are trade down behavior (owing to increasingly stretched household budgets) and the disproportionate and growing percentage of U.S. GDP growth coming from health care spending and government spending (link). Walmart’s third-quarter (F3Q2025) results this morning highlighted both trends. Walmart once again increased its full-year sales and profit guidance, and its U.S. comparable (comp) sales are growing more quickly than almost all other large publicly-traded retailers, up 5.3% in the most recent quarter. Why? The company noted continued market share gains across income cohorts led by upper-income households, and that households earning more than $100,000 accounted for 75% of those gains. Fellow discount retailers Costco, TJX, Ross Stores and Burlington Stores have been other standouts within retail this year, while many other retailers have been experiencing sales declines.
What about the other trend I mentioned? Walmart’s three merchandise categories are Grocery, Health & Wellness (which includes pharmacy, over-the-counter drugs and other medical products, optical services and other clinical services) and General Merchandise. In Walmart U.S., Grocery grew comp sales by mid single-digits, Health & Wellness mid-teens and General Merchandise low single-digits. In other words, growth in Health & Wellness is dwarfing the others, and has been for several quarters. (Sam’s Club is no different in that regard.) The rapid Health & Wellness growth reflected higher pharmacy script counts (including GLP-1), a higher mix of branded versus generic drug sales, and growth in over-the-counter drugs. GLP-1 sales contributed about 1% of the segment comp sales growth. The company also mentioned on last quarter’s call that the (rapid) growth in its Health & Wellness category was being driven by GLP-1 drugs.
Walmart is far from alone in experiencing far more rapid sales growth in its pharmacy business than in its other merchandise categories. The same is the case at CVS Health: of its 9.1% YTD same store sales growth in its Pharmacy & Consumer Wellness segment, Pharmacy was up 12.1% while Front Store (which is items other than prescription drugs) was down 2.5%, with prescription volumes up 7.1%. Said the company on its 3Q call earlier this month, “We also remain cautious in our outlook for Front Store sales, which have been pressured in recent quarters, consistent with the broader macroeconomic backdrop.” Walgreens Boots Alliance is no different: its comparable retail sales in its U.S. Retail Pharmacy segment have declined in each of the last seven quarters, the latest decline in its fiscal fourth quarter “reflecting a challenging retail environment and continued channel shift.” By contrast, its pharmacy comp sales were up nearly 12% in the quarter, with comp prescriptions up 2.5%; the sales growth was driven by branded drug inflation and mix effects.
The more money Americans spend on prescription drugs, the less they have to spend on everything else. It’s no wonder, then, that large retailers selling items other than prescription drugs or selling full-priced items are struggling with few exceptions. Speaking of, Lowe’s was the other large U.S. retailer to report its third-quarter results this morning. The company reported its eighth straight quarterly comparable sales decline and noted continued “soft” demand for do it yourself discretionary big-ticket projects. Its outlook? “It’s unclear when lower rates and improved consumer sentiment will translate into improved home improvement demand…We look at mortgage rates that continue to remain elevated, consumer sentiment, housing turnover, affordability continue to create pressure here in the near term.”