- Strong Q4 Beat:Walmart exceeded earnings and sales expectations, driven by margin expansion and high-margin segments like advertising and membership.
- Weak FY26 Guidance:Conservative outlook, forex headwinds, and Vizio-related costs led to a pre-market stock drop despite solid execution.
- Dividend Boost:A 13% dividend increase highlights strong cash flow confidence despite near-term challenges.
Walmart Inc. (WMT) delivered a solid fiscal fourth-quarter performance, surpassing expectations on earnings and operating income. The retailer reported adjusted EPS of $0.66, slightly above the $0.64 consensus estimate, driven by gross margin expansion and strength in high-margin segments, including advertising (+29%) and membership revenue (+16%). U.S. same-store sales, excluding fuel, climbed 4.6%, edging past the 4.4% forecast, supported by transaction growth of 2.8% and modest gains in general merchandise sales.
Despite the upbeat results, Walmart’s fiscal 2026 guidance came in weaker than expected, with management citing cautious consumer trends, foreign exchange headwinds, and near-term investments—including the Vizio acquisition, which analysts believe was not fully factored into consensus estimates. The stock fell 8% pre-market, though it remains up 16% year-to-date and 77% over the past year.
Q4 Performance: Solid Margins, Higher-Income Consumers Drive Sales
Fourth-quarter earnings increased 10% year-on-year (“YoY”), with Walmart U.S. same-store sales, ex-fuel, up 4.6%, compared to 4.0% a year ago. Traffic growth remained robust at 2.8%, while the average ticket price increased 1.8%. General merchandise posted low-single-digit growth, while grocery inflation remained low (~0.7%), mainly due to declining egg prices. Notably, Walmart continued to gain share among higher-income households ($100K+), and private-label grocery penetration rose 70 basis points.
Gross margin expanded 50 basis points YoY to 23.9%, outpacing the consensus estimate of 23.7%, reflecting improved inventory management, lower markdowns, and a favorable business mix shift toward advertising, membership, and marketplace. However, adjusted SG&A expenses deleveraged 52 basis points to 20.5%, slightly above expectations, due to higher variable compensation, increased marketing spend, and costs linked to the Vizio acquisition.
FY26 Guidance: Conservative Outlook Weighs on Shares
Walmart expects FY26 constant-currency revenue growth of 3%-4%, trailing the 4.2% consensus estimate, while adjusted operating income is projected to grow 3.5%-5.5%, well below the Street’s 10.3% forecast. The guidance reflects a 150-basis-point headwind from the Vizio acquisition (-80 bps) and Leap Day (-70 bps). Excluding these factors, Walmart anticipates underlying operating income growth of 5%-7%, which compares favorably with its initial FY25 outlook of 4%-6%.
The company guided FY26 adjusted EPS between $2.50 and $2.60, including a $0.05 impact from forex, falling short of the $2.77 consensus estimate. However, Walmart outperformed its FY25 initial EPS guidance, delivering $2.51 versus the $2.23-$2.37 range initially provided.
Dividend Hike Reinforces Cash Flow Confidence
Walmart announced a 13% increase in its annual dividend—the largest boost in over a decade—underscoring management’s confidence in cash flow generation. The move signals ongoing shareholder returns despite near-term macroeconomic and investment challenges.
Bottom Line: While Walmart’s conservative guidance has rattled investors, the company continues to execute effectively, particularly in its high-margin segments. With a resilient business model and shareholder-friendly policies, the long-term trajectory remains strong despite near-term headwinds.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
