Guidance Overshadows Growth as Walmart Shares Go Tumbling

Walmart said Thursday that it made a record $681 billion in sales, more than any other company on earth and good for a 5.1% increase, in its latest fiscal year. The big box retailer’s income from operations rose even faster, climbing 8.6% to $29.3 billion.

Which, of course, means — [drumroll] — Walmart shares had their most calamitous day in three years, tumbling 6.5%. That’s because when executives pulled out their crystal ball — a.k.a., annual guidance — investors glimpsed a future they were none too keen on.

No Fun in Fundamentals

Walmart’s stock has behaved more like that of a white hot Silicon Valley tech darling over the past 12 months, rising 66%. That’s better than the broader market and rival retail behemoth Amazon — not bad for a 62-year-old staple of Arkansas — and comes thanks to strengths almost tailor-made for the current consumer retail market.

Walmart has long been able to offer lower prices than smaller competitors because of the negotiating power its massive market share gives it over suppliers. Those low prices, executives say, have drawn in a new cohort of wealthier customers — defined as people earning over $100,000 — who, amid steady US economic and wage gains muted by stubborn inflation, are newly converted bargain hunters. During the fourth quarter, same-store sales at the company’s namesake outlets rose 4.6%, beating Wall Street expectations and the broader 3.8% increase in retail spending during the US holiday season. To boot, Walmart’s global e-commerce sales rose 16% during the holiday shopping period. But hindsight, as they say, is 20/20, and a cloudier future is what set markets on edge in the face of such a strong performance:

• Walmart executives said its current fiscal-year revenue growth target is 3% to 4%, well below last year’s 5.1%. This projection also pegs Walmart’s adjusted earnings per share for the year at $2.50 to $2.60, substantially lower than Wall Street’s $2.76 forecast.
• Investors view Walmart — which leads the US grocery market with a 23% share — as an essential indicator of consumer sentiment, which is why its forecasts are so closely watched. On the upside, Chief Financial Officer John David Rainey indicated on the company’s investor call that executives are being cautious in their estimates: “We have to acknowledge that we are in an uncertain time and we don’t want to get out over our skis here.” 

X-Factor: Rainey said Walmart did not factor looming US tariffs on foreign goods into its forecast, because it’s unclear if or when they’ll kick in. He did note that even though two thirds of the things Walmart sells are manufactured, assembled, or grown in the US and despite its considerable sway with suppliers, it wouldn’t be immune to price hikes. But Walmart’s inventory levels increased 3% last quarter, suggesting it may be calling in orders to get ahead of future levies.