Walmart stock fell 6.6% after reporting a strong 2024 and warning of slower growth in 2025, according to the Wall Street Journal.
Behind the warning is Walmart’s guess tariffs could raise prices even more – putting a crimp in consumer spending for items other than the essentials – such as eggs, coffee, and gasoline – which has played to Walmart’s every day low price strategy.
Does the drop in Walmart stock represent a buying opportunity for investors? Analysts see some upside. However, government layoffs, more tariffs, and the reluctance of companies to invest for the long-term in the face of high policy uncertainty could lead to slower growth in consumer spending.
Walmart expressed confidence in the company’s strategy. “Our prices are low and we are becoming more convenient,” Walmart CEO Doug McMillon said on a February 20 investor. “Customers and members are going to be looking for value. They’re going to be looking for convenience.”
Walmart’s Mixed Fourth Quarter Report
Walmart’s mixed fourth quarter report featuring revenue and earnings exceeding estimates and a forecast of slower profit growth in the current fiscal year.
While Walmart saw strong gains in its e-commerce business and membership programs, the retail giant will not be “immune” from U.S. tariffs on Mexico and Canada, said to Walmart chief financial officer John David Rainey, according to CNBC.
Here are the key numbers:
- Fiscal fourth quarter revenue: $180.55 billion – up 3.8% from the year before and $440 million more than the consensus, according to London Stock Exchange Group
- Q4 adjusted earnings per share: 66 cents – two cents more than expected, according to LSEG
- Q4 net income: $5.25 billion – down 4.4% from the year before, CNBC reported.
- Current year net sales growth forecast: a range between 3% and 4%, noted CNBC
- Current year operating income growth forecast: a ranger between 3.5% to 5.5% on a constant currency basis, according to CNBC.
- Current year adjusted earnings per share estimate: $2.55 – the midpoint of a range between $2.50 to $2.60 per share – 21 cents below the Wall Street estimate, noted CNBC.
To be sure, the most recent quarter delivered other positive results. Same-store sales or Walmart’s U.S. business, increased 4.6% and 6.8% for Sam’s Club, excluding fuel. Meanwhile, U.S. e-commerce sales rose 20% – the 11th straight quarter of double-digit gains – as “global e-commerce sales rose 16%,” reported CNBC.
How Macroeconomic Policy Could Crimp Walmart’s Growth
Macroeconomic policy could lower consumer spending – which accounts for two-thirds of economic growth. While consumer spending appears steady, “there’s far from certainty in the geopolitical landscape.” Rainey told CNBC. While some 66% of what Walmart sells is made in the U.S, the company is “not going to be completely immune” if tariffs on imports from Mexico and Canada take effect.
“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.”
Walmart chose to provide prudent guidance to investors. “We have to acknowledge that we are in an uncertain time and we don’t want to get out over our skis here,” Rainey told the Journal. “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 uncertainty.”
Where Will Walmart Stock Go Next?
Walmart stock has some upside in the view of Wall Street. Based on 25 Wall Street analysts offering 12-month price targets, Walmart stock could rise 14.8% to hit the average target of $111.83, noted TipRanks.
While some analysts remain bullish, many are concerned. “We are not overly concerned with the guidance, and to us, the bottom line is that WMT’s business trends remain strong,” D.A. Davidson analyst Michael Baker said in a research note featured by Investor’s Business Daily. Walmart tends to “beat expectations, guiding low the next quarter, then beating that,” Baker wrote.
Analysts are concerned about the law of large numbers and uncertainty related to tariffs.
“The company had a very strong 2024 and the company has had a number of very strong years since the onset of the pandemic,” Fitch Ratings retail analyst David Silverman told the Times. “It’s just mathematically a challenge to maintain these levels of growth.”
Concerns about tariffs could spread beyond Walmart. “The biggest challenge on the horizon for Walmart and everybody else is how the tariffs picture clears up,” Zacks Investment Research director of research Sheraz Mian said.
“The question has always been, when does that trend slow down and when does the stress and pressure of its lower-income customers start showing up in results?” Mian added, according to the Times.
Another analyst sees lower spending leading to job losses. “At the moment the labor market is still strong,” Zacks Investment Management client portfolio manager Brian Mulberry told The Guardian. If Walmart’s soft guidance is followed by a decline in jobs, “it would be a strong signal that economic growth is slowing,” he concluded.
If Baker is right, the drop in Walmart’s stock is a buying opportunity. Yet if Mulberry’s job loss scenario takes place, investors might be better off taking their profits in Walmart stock.