Walmart, one of the largest retailers in the world, recently announced its financial results for the fourth quarter of its fiscal year. The company reported higher-than-expected revenue and earnings, showing strong sales growth during the holiday season. However, despite this positive performance, Walmart warned that its profit growth is expected to slow down in the coming year. This announcement led to an 8% drop in its stock price during premarket trading.
Strong Holiday Sales and E-Commerce Growth
In the last quarter, Walmart’s total revenue increased by approximately 4%. A key contributor to this growth was the strong performance of its e-commerce business in the United States. The company’s online sales grew by 20%, largely due to an increase in store pickup and home delivery services. Walmart also saw more purchases from wealthier customers, which helped boost overall sales.
Despite these positive results, investors were not entirely satisfied. The company’s financial outlook for the coming year was lower than what many analysts had expected, leading to a drop in Walmart’s stock price.
Forecast for the Next Fiscal Year
Looking ahead, Walmart expects its net sales to grow between 3% and 4% in the upcoming fiscal year. Additionally, the company’s adjusted operating income is expected to grow between 3.5% and 5.5% on a constant currency basis. However, these projections include some challenges.
One of the factors affecting Walmart’s outlook is its recent acquisition of the smart TV company Vizio. The company stated that this acquisition, along with the extra day in 2024 due to the leap year, would create a 1.5 percentage point (or 150 basis points) impact on its income growth. In the previous fiscal year, Walmart reported an adjusted operating income growth of 9.6% on a constant currency basis, which was much higher than what is expected for the next year.
Walmart also shared its forecast for full-year adjusted earnings per share. The company expects earnings to be between $2.50 and $2.60 per share. This figure was lower than the $2.76 per share that Wall Street analysts had anticipated.
Stable Consumer Spending but Economic Uncertainty
John David Rainey, Walmart’s Chief Financial Officer (CFO), commented on the overall financial situation. In an interview, he described consumer spending as “steady” and noted that there were no significant or sudden changes in shopping habits. However, he also acknowledged that the broader economic and geopolitical landscape remains uncertain.
Rainey explained that while Walmart has experienced strong sales, external factors could still affect its business. One major concern is the potential introduction of tariffs on imports from Mexico and Canada.
Potential Impact of Tariffs
A significant portion of Walmart’s products are made, grown, or assembled in the United States. However, the company still relies on imports for many of the goods it sells. If new tariffs are introduced on goods coming from Mexico and Canada, Walmart’s costs could increase.
Rainey stated that Walmart would not be entirely protected from these tariffs if they come into effect. However, he also pointed out that the company has experience dealing with trade barriers. Over the past seven or eight years, Walmart has had to navigate various trade policies and has developed strategies to manage cost increases.
He mentioned that Walmart would take several steps to minimize the impact of tariffs. These steps could include:
- Working closely with suppliers to find ways to manage rising costs.
- Focusing more on private label brands, which are Walmart’s in-house products that can be produced at lower costs.
- Shifting supply sources to regions where products might be cheaper to import.
By using these strategies, Walmart hopes to keep prices as low as possible for consumers, even if tariffs increase overall costs.
Uncertainty Over Future Trade Policies
At the moment, Walmart has not included the potential impact of tariffs in its financial forecasts. This is because it remains unclear whether these tariffs will actually be implemented. While there is speculation about changes in trade policy, the company cannot predict with certainty what will happen in the near future.
Because of this uncertainty, Walmart is waiting to see how trade policies develop before making adjustments to its financial plans.
Challenges and Opportunities in the Retail Market
While Walmart faces challenges such as slowing profit growth and potential tariffs, it also has opportunities to expand and strengthen its business. The company’s success in e-commerce has been a major positive factor, helping it compete with other large retailers.
Additionally, Walmart’s strong position in the grocery sector continues to be an advantage. Many customers rely on Walmart for affordable food and household items, which helps the company maintain steady sales even during economic downturns.
Another area of growth for Walmart is its membership programs. The company has been investing in subscription services, similar to those offered by competitors, to encourage customer loyalty. These programs provide benefits such as free delivery and discounts, making Walmart a more attractive shopping option.
Stock Market Reaction
Despite Walmart’s overall strong performance, investors reacted negatively to its financial outlook. The company’s stock price fell by 8% in premarket trading following the announcement.
This drop in stock price reflects investor concerns that Walmart’s profit growth may not be as strong as in previous years. While sales are expected to increase, the rate of growth in earnings is projected to slow down. Investors generally prefer to see consistent growth in both revenue and profit, so any sign of slowing earnings can lead to concerns about a company’s future performance.
