Walmart shares drop as retailer says profit growth will slow

Walmart shares fell more than 6% Thursday, as the big-box retailer said profit growth will slow this fiscal year even as sales continue to climb.

Walmart said holiday-quarter revenue rose about 4% and e-commerce sales shot up 20% in the U.S., as growth in store pickup and home deliveries and gains with upper-income shoppers boosted results. But its outlook disappointed Wall Street.

In the fiscal year ahead, the discounter said it expects net sales to grow 3% to 4% and adjusted operating income to increase between 3.5% to 5.5% on a constant currency basis. The company said that includes a 150 basis point, or 1.5 percentage point, headwind from acquiring smart TV company Vizio and following a leap year in 2024. For the just completed fiscal year, Walmart posted adjusted operating income growth of 9.7% on a constant currency basis.

The company also said it expects full-year adjusted earnings of $2.50 to $2.60 per share, which includes a 5 cent per share headwind from currency. That fell short of the $2.76 per share Wall Street had expected.

In an interview with CNBC, Chief Financial Officer John David Rainey described consumer spending patterns as “steady” and said “there’s not any sharp changes that we’ve seen.”

Yet he acknowledged “there’s far from certainty in the geopolitical landscape.”

About two-thirds of what Walmart sells is made, grown or assembled in the U.S. Yet if tariffs on imports from Mexico and Canada take effect, he said Walmart is “not going to be completely immune.”

“We’ve lived in a tariff environment for the last seven or eight years, and we’ll do what we know how to do,” he said. “We’ll work with suppliers. We’ll lean into our private brand. We’ll shift supply where necessary to try to take advantage of lower costs that we can then pass on to consumers.”

Since Walmart is not sure if the tariffs will take effect next month, the company did not factor them into its guidance, Rainey said.

Here is what the big-box retailer reported for the fiscal fourth quarter compared with Wall Street’s estimates, according to a survey of analysts by LSEG:

• Earnings per share: 66 cents adjusted vs 64 cents expected
• Revenue: $180.55 billion vs. $180.01 billion expected

In the three-month period that ended Jan. 31, Walmart’s net income fell to $5.25 billion, or 65 cents per share, compared with $5.49 billion or 68 cents per share in the year-ago period. Revenue rose from $173.39 billion in the year-ago quarter. The company’s adjusted earnings per share figure excluded one-time items, including opioid-related legal costs and gains and losses on equity and other investments.

Comparable sales, an industry metric also known as same-store sales, increased 4.6% for Walmart’s U.S. business and 6.8% for Sam’s Club, excluding fuel.

Walmart’s e-commerce sales in the U.S. soared 20% compared with the year-ago period. That marked the 11th straight quarter of double-digit gains. Global e-commerce sales rose 16%.

Since Walmart is the nation’s top grocer, investors often view it as a barometer of consumer health. Investors have tried to parse whether softer U.S. retail sales in January were a blip or warning sign. Wall Street also is trying to understand the potential impact of policy decisions, such as tariffs, on consumer spending. 

Restaurant chains, including Restaurant Brands‘ Burger King and Popeyes, said sales improved in the fourth quarter, but they had weak trends in January. 

Yet those restaurants and some retail experts have blamed short-term factors for the drop, including winter storms, consumers taking a break after splurging over the holidays and contending with damage and disruption from the Los Angeles wildfires.

Rainey echoed those sentiments on the call with CNBC, saying cold weather and the wildfires hurt Walmart’s sales. He said that’s temporary, however, and doesn’t indicate a change in consumer spending patterns.

Even so, the big-box retailer faced many questions from retail analysts on Thursday’s earnings call about the reasons for its conservative forecast.

On the earnings call, Rainey said the outlook is consistent with Walmart’s guidance for the last two years, when it projected operating income growth of 4% to 6% annually. If the company took out the impact from the Vizio acquisition and extra day from leap year, he said the outlook would be 5% to 7%, which would represent an acceleration from its previous guidance ranges.

Still, he said, “it’s prudent to have an outlook that is somewhat measured.”

“We have to acknowledge that we are in an uncertain time and we don’t want to get out over our skis here,” he said. “There’s a lot of the year to play out. Again, we feel good about our ability to navigate the environment, whether it’s tariffs or other macro [economic] uncertainty.”

Walmart has taken a page from rival Amazon’s book, as it chases ways make money outside of retail. Those newer moneymakers worked in its favor in the fourth quarter. Its advertising business and third-party marketplace are small compared with Amazon’s, but have posted gains and driven higher margins than Walmart’s retail business.

Global membership income grew by 16% year over year, with some of that coming from its subscription-based membership program, Walmart+, in addition to warehouse club Sam’s Club. Its global advertising business grew 29%, including a 24% increase in Walmart Connect.

Walmart’s third-party marketplace and its fulfillment services segment, which packs and ships orders for marketplace sellers, also rose by double digits.

“These are all higher margin, faster-growing parts of our business where the math is just suggesting that our margins are going up over time,” he said on the call with CNBC. “And frankly, I don’t see any end to this.”

Faster and more frequent deliveries have helped Walmart’s e-commerce business become more profitable. On the earnings call, Rainey said the delivery routes for Walmart have become denser as customers place more orders. Plus, he said, shoppers have shown a willingness to pay more to speed online orders to their doors.

Over 30% of Walmart customers who have an item delivered from a store have paid an extra fee to have that delivered within a few hours, Rainey said. On Christmas Eve, he said, 77% of orders were express deliveries. Those faster deliveries, which are made in less than two hours, cost an additional $10.

One of Walmart’s newer services, pharmacy deliveries, is a growth opportunity, too, Walmart U.S. CEO John Furner said on the earnings call. The deliveries began in October in six states, but have expanded across the country.

As customers order a prescription for a sick family member or place an order for their regular medication, many are buying other items like groceries, Furner said.

Walmart also hiked its dividend by 13% to 94 cents per share, the largest increase in more than a decade.

As of Wednesday’s close, shares of Walmart are up about 83% over the past year. The stock closed on Wednesday at $104.00, up about 15% so far this year and outpacing the approximately 4% gains of the S&P 500 during the same period.

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