Walmart’s Stock Drops as Profit Growth Slows Despite Strong Sales
Wall Street Reacts as Walmart’s Outlook Disappoints Investors
Walmart’s stock fell 8 percent in premarket trading on Thursday after the retail giant projected slower profit growth for the coming fiscal year. Despite a strong performance during the holiday quarter, with rising sales and surging e-commerce demand, the company’s outlook failed to meet Wall Street expectations.
Walmart reported a 4 percent increase in revenue and a 20 percent jump in U.S. e-commerce sales, driven by higher-income shoppers and strong demand for store pickup and home delivery services. However, the company’s guidance for the fiscal year ahead raised concerns among investors.
Key Financial Projections
For the upcoming fiscal year, Walmart expects:
- Net sales growth of 3 to 4 percent
- Adjusted operating income growth between 3.5 and 5.5 percent on a constant currency basis
- A 1.5 percentage point headwind from acquiring smart TV brand Vizio and the shift caused by the 2024 leap year
- Full-year adjusted earnings per share between $2.50 and $2.60, below the $2.76 expected by analysts
Economic and Geopolitical Uncertainty
In an interview with CNBC, Walmart’s Chief Financial Officer John David Rainey described consumer spending as steady but acknowledged ongoing uncertainty due to geopolitical factors.
While Walmart sources most of its products from the United States, potential tariffs on imports from Mexico and Canada could still have an impact. The company has not factored these tariffs into its financial outlook, as it remains uncertain whether they will take effect next month.
“We have operated in a tariff environment for the last seven or eight years, and we will continue to manage it by working with suppliers, optimizing private-label offerings, and adjusting supply chains to control costs,” Rainey said.
Fourth-Quarter Performance
Walmart’s earnings report for the three months ending January 31 included:
- Earnings per share: $0.66 (exceeding the expected $0.64)
- Revenue: $180.55 billion (surpassing the expected $180.01 billion)
- Comparable sales: Walmart U.S. up 4.6 percent, Sam’s Club up 6.8 percent
- E-commerce growth: 20 percent in the U.S., 16 percent globally
Despite strong sales, Walmart’s net income declined to $5.25 billion from $5.49 billion a year earlier. The decrease was attributed to one-time items, including opioid-related legal costs and losses on equity and other investments.
Walmart’s Role as an Economic Indicator
As the largest grocery retailer in the U.S., Walmart’s performance is often viewed as a key measure of consumer spending trends. Some analysts are concerned that weaker retail sales in January could signal a broader slowdown in consumer spending. However, Rainey suggested that factors such as winter storms and wildfires in Los Angeles had a temporary impact on sales rather than indicating a fundamental change in consumer behavior.
Growth in High-Margin Business Segments
Despite concerns over slower profit growth, Walmart continues to expand its high-margin revenue streams, including:
- Advertising, which saw double-digit growth globally
- Membership income, particularly through Sam’s Club
- Fulfillment services, which provide logistics support to third-party sellers
“These areas of our business are growing faster and generating higher margins, which suggests an overall increase in profitability over time,” Rainey said.
Dividend Increase and Stock Performance
In an effort to reassure investors, Walmart announced a 13 percent increase in its quarterly dividend, raising it to $0.94 per share. This marks the company’s largest dividend hike in over a decade.
Despite the stock’s recent decline, Walmart has performed well in the past year, with shares rising approximately 83 percent. Even with Thursday’s drop, Walmart shares remain up about 15 percent in 2024, outperforming the S&P 500’s 4 percent gain over the same period.
Looking Ahead
Walmart’s ability to navigate supply chain challenges, geopolitical uncertainties, and shifts in consumer behavior will be key to its performance in the months ahead. While its stock has taken a hit, the company’s long-term strategy—centered around digital expansion, high-margin business segments, and operational efficiency—could position it for continued growth.
Investors will be watching closely to see whether Walmart can sustain its momentum and meet evolving market expectations.
